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 JUNE 30, 1998
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 2,155,000 shares of common stock, par value $.0001 per share,
outstanding as of June 30, 1998.
-1-
<PAGE>
ARCA CORP. AND SUBSIDIARIES
INDEX
PAGE
PART 1. FINANCIAL INFORMATION ----
ITEM 1. FINANCIAL STATEMENTS
-------------------------
CONSOLIDATED BALANCE SHEETS AS OF
JUNE 30, 1998 and JUNE 30, 1997...............3
CONSOLIDATED STATEMENT OF OPERATIONS FOR
THE SIX MONTHS ENDED JUNE 30, 1998 AND
JUNE 30, 1997.................................4
CONSOLIDATED STATEMENT OF CASH FLOWS FOR
THE SIX MONTHS ENDED JUNE 30, 1998 AND
JUNE 30, 1997.................................5
CONSOLIDATED STATEMENT OF CHANGES IN
STOCKHOLDERS' EQUITY FOR THE PERIOD
COMMENCING JANUARY 1, 1997 AND ENDING
JUNE 30, 1998.................................6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS....7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS.........11
PART II. OTHER INFORMATION..................................13
SIGNATURES.............................................14
EXHIBIT 1 EARNINGS PER SHARE SCHEDULE.................15
-2-
<PAGE>
ARCA CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
JUNE 30, 1998 AND
JUNE 30, 1997
(UNAUDITED)
ASSETS 1998 1997
---- ----
Rental property, net of accumulated
depreciation of $228,833 and
$132,728 respectively $3,356,233 $3,493,667
Cash 42,147 41,312
Cash held in escrow 104,777 56,326
Accounts receivable 7,071 11,248
Notes receivable 90,000 0
Prepaid expenses and other current assets 22,586 18,539
Deferred financing costs, net of
accumulated amortization of $6480
and $0, respectively 92,643 0
Organization Costs, net of accumulated
amortization of $3,767 and
$2,250, respectively 4,733 5,291
---------- -----------
TOTAL ASSETS $3,720,190 $3,626,383
========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Mortgage notes payable $3,406,829 $3,154,949
Notes payable 37,500 101,081
Accrued interest 34,489 335,550
Note payable -stockholder 150,000 22,900
Accounts payable 34,934 22,859
Accrued expenses 57,337 62,367
Security deposits payable 53,241 51,252
---------- ----------
TOTAL LIABILITIES 3,774,330 3,750,958
Stockholders' Equity
Common stock, $.0001 par value
50,000,000 shares authorized,
2,390,000 and 2,050,000 shares issued
and outstanding, respectively 239 205
Additional paid in capital 484,592 333,895
Accumulated deficit (338,948) (258,675)
Less 235,000 and -0- shares of treasury
stock, at cost (23) 0
Stock subscription receivable (200,000) (200,000)
--------- ---------
TOTAL STOCKHOLDERS' EQUITY (54,140) (124,575)
--------- ---------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $3,720,190 $3,626,383
========== ==========
-3-
<PAGE>
ARCA CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND
JUNE 30, 1997
(UNAUDITED)
1998 1997
---- ----
Revenues
Rental income $380,301 $355,111
Tenant fees and other income 14,381 6,909
Interest income 587 743
------- ---------
TOTAL REVENUE 395,269 362,763
Operating expenses
Administrative expenses 61,281 90,034
Utilities expense 48,177 51,841
Operating and maintenance 59,462 59,672
Taxes and insurance 61,831 69,326
Depreciation and amortization 52,155 44,718
-------- ---------
TOTAL OPERATING EXPENSES 282,906 315,591
-------- ---------
Operating income 112,363 47,172
Interest expense 149,332 166,435
-------- ---------
Loss before minority interest (36,969) (119,263)
Minority interest 0 0
-------- ---------
Net loss ($36,969) ($119,263)
========= =========
Net loss per common share - basic ($.02) ($.09)
Average number of common shares
outstanding - basic 2,131,667 1,250,000
========= ==========
-4-
<PAGE>
ARCA CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND
JUNE 30, 1997
(UNAUDITED)
Cash flows from operating activities: 1998 1997
---- ----
Net loss ($36,969) ($119,263)
Adjustments to reconcile net loss to net
cash provided by (used in)operating activities:
Depreciation and amortization 52,155 44,718
Stock compensation expense 0 46,600
(Increase) decrease in:
Accounts receivable 1,669 4,333
Prepaid expenses 29,912 35,703
Cash held in escrow (27,108) (23,960)
Deposits 0 0
Increase (decrease) in:
Accounts payable 15,706 8,753
Accrued expenses (43,565) 3,271
Accrued interest 7,292 80
Security deposits payable (2,243) (1,449)
Other liabilities (3,701) 0
-------- ---------
Net cash provided by (used in)operating activities (6,852) (1,214)
-------- ---------
Cash flows from investing activities:
Cash received from acquisition 10,553 0
Increase in organization costs (1,000) (41)
Collection of note receivable 5,000 0
Purchases of property and equipment (26,865) (8,179)
-------- ---------
Net cash provided by (used in) investing activities (12,312) (8,220)
-------- ---------
Cash flows from financing activities:
Repayment of mortgage notes receivable (15,739) 0
Proceeds from note payable 0 2,900
Proceeds from issuance of common stock 25,000 15,000
Repayments of notes payable (9,500) 0
-------- ---------
Net cash (used in)
provided by financing activities (239) 17,900
-------- ---------
Increase (decrease) in cash (19,403) 8,466
Cash, beginning 61,550 32,846
-------- ---------
Cash, June 30, 1998 and 1997 $42,147 $41,312
======== =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest $142,040 $166,355
======== =========
Cash paid for income taxes $ 400 $ 0
======== =========
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Acquisition of S&P Custom Homes, Inc.
Notes receivable $95,000 0
Other current assets 963 0
Deferred financing costs 12,792 0
Accrued expenses (3,600) 0
Issuance of common stock (140,708) 0
Acquisition of common stock 25,000 0
-------- ---------
Cash received from acquisition ($10,553) 0
======== =========
Issuance of 25,000 and 1,250,000 shares
of common stock, respectively $25,000 $75,000
Stock subscription promissory note receivable 0 (60,000)
--------- ---------
Proceeds from issuance of common stock $25,000 $15,000
======== =========
Issuance of 0 and 300,000 shares of common stock
as partial payment of legal and professional fees $ 0 $46,600
======== =========
Purchases of property and equipment $ 26,865 $109,260
Debt incurred 0 (101,081)
-------- ---------
Cash paid for property and equipment $ 26,865 $ 8,179
======== =========
-5-
<PAGE>
ARCA CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM JANUARY 1, 1997 TO JUNE 30, 1998
(UNAUDITED)
<TABLE>
<C> <S> <S> <S> <S> <S> <S> <S>
Stock
Additional Subscription Treasury Total
Common Stock Paid-in Promissory Note Accumulated Stock Stockholder's
Shares Amount Capital Receivable Deficit Shares Amount Equity
Balance,
1/1/97 500,000 50 212,450 (140,000) (139,412) 0 0 (66,912)
Issuance of
shares of
common stock 65,000 7 32,493 0 0 0 0 32,500
<F1>
Issuance of
shares of
common stock 1,250,000 125 74,875 (60,000) 0 0 0 15,000
Issuance of
shares of
common stock 235,000 23 14,077 0 0 0 0 14,100
<F2>
Issuance of
shares of
common stock 10,000 1 9,999 0 0 0 0 10,000
Net loss 0 0 0 0 (162,567) 0 0 (162,567)
________ _____ ________ ________ _________ ______ ______ ________
Balance
12/31/97 2,060,000 206 343,894 (200,000) (301,979) 0 0 (157,879)
Issuance of
shares of
common stock
<F3> 25,000 3 24,997 0 0 0 0 25,000
Issuance of
shares of
common stock
<F4> 300,000 30 127,886 0 0 0 0 127,916
Acquisition of
shares of
common stock
for reissuance
<F3> (25,000) (3) (24,997) 0 0 0 0 (25,000)
Issuance of
shares of
common stock
<F5>
<F6>
30,000 3 12,789 0 0 0 0 12,792
Acquisition of
shares of
common stock
<F2> (235,000) 0 23 0 0 235,000 (23) 0
Net loss 0 0 0 0 (36,969) 0 0 (36,969)
--------- ----- -------- -------- ----------- ______ ______ ________
Balance
6/30/98 2,155,000 $239 $484,592 ($200,000) ($338,948) 235,000 (23) ($54,140)
========= ===== ======== ======== =========== ======== ====== ========
</TABLE>
-6-
<PAGE>
<F1> 50,000 shares of stock were issued to Stephen M. Robinson, P.A. in
partial payment of legal services rendered during the year ending
December 31, 1997. Stephen M. Robinson, P.A. is a law firm whose
sole shareholder is Stephen M. Robinson, Vice President, Secretary
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 professional services rendered to the Company during the year
ended December 31, 1997.
<F2> 235,000 shares of stock had been issued to a consultant in connection
with registrant's acquisition program. In June 1998, these shares were
cancelled by mutual agreement.
<F3> In January 1998, 25,000 shares of stock were issued for $25,000 in cash
to S&P Custom Homes, Inc., a home builder and specialty finance company
in which Harry J. Santoro, President, Treasurer and a director of the
Company, and Stephen M. Robinson, Vice President, Secretary, and a
director of the Company, are affiliates. S&P Custom Homes, Inc. merged
with the Company pursuant to a merger agreement effective
on May 28, 1998. As a result of this transaction, the shares were
acquired by the Company.
<F4> 300,000 shares of stock were issued in connection with the merger of
S&P Custom Homes, Inc. with the Company. As a result of this
transaction, 50,640 shares of stock were issued to Harry J. Santoro,
President, Treasurer and a director of the Company, and 69,370 shares
of stock were issued to Stephen M. Robinson, Vice President, Secretary,
and a director of the Company, and 179,990 shares were issued to
non-affiliates in exchange for the stock they owned in S&P.
<F5> 25,000 shares of stock were issued to Stephen M. Robinson, P.A. for
legal services performed in connection with the S&P merger. Stephen M.
Robinson, the sole shareholder of Stephen M. Robinson, P.A., is the
Vice President, Secretary, and a director of the Company.
<F6> 5,000 shares of stock were issued to a non-affiliate in connection
with the S&P merger.
-7-
<PAGE>
ARCA CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998
(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, 1997 and
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 June 30,
1998 and 1997, the consolidated statement of operations for the six months
ended June 30, 1998 and 1997, the consolidated statement of cash flows for the
six months ended June 30, 1998 and 1997 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. Business Acquisition
Effective May 28, 1998, the Company, Beran Corp. ("Beran") and S&P Custom
Homes, Inc. ("S&P") entered into an Agreement and Plan of Merger (the
"Merger") pursuant to which S&P was merged into Beran. Beran is a wholly
owned subsidiary of the Company formed solely for the purpose of effectuating
the Merger. Pursuant to the Merger, each share of S&P common stock was
exchanged for one share of the Company's common stock, except for four S&P
stockholders who agreed to accept less than a one-for-one share exchange.
This resulted in a 300,000 share issuance of the Company's common stock in
exchange for the S&P common stock, for a value of $127,916. In connection
with the merger, 30,000 additional shares of common stock were issued for
$12,792 and included in deferred financing costs, and 25,000 shares of the
Company's common stock were re-acquired by the Company for reissuance.
3. Related Party Transactions
In January 1998, 25,000 shares of stock were issued for $25,000 in cash to S&P
Custom Homes, Inc., a home builder and specialty finance company in which
Harry J. Santoro, President, Treasurer and a director of the Company, and
Stephen M. Robinson, Vice President, Secretary, and a director of the Company,
are affiliates. Effective May 28, 1998, these shares were re-acquired by the
Company as a result of the merger with S&P.
Effective May 28, 1998, the Company acquired S&P Custom Homes, Inc. (see Note
2). Certain officers of the Company were also shareholders in S&P. Harry J.
Santoro, President, Treasurer and a Director of the Company, received 50,640
shares of the Company's common stock as a result of his ownership in S&P.
Stephen M. Robinson, Vice President, Secretary and a Director of the Company,
received 69,370 shares of the Company's common stock as a result of his
ownership in S&P. In addition, Stephen M. Robinson, P.A. was issued 25,000
shares of common stock for legal services performed in connection with the S&P
merger. Stephen M. Robinson, the sole shareholder of Stephen M. Robinson,
P.A., is Vice President, Secretary, and a director of the Company.
A summary of related party transactions for the year ended December 31, 1997
appears in the Form 10-KSB previously filed by the Company and is hereby
incorporated by reference.
-8-
<PAGE>
ITEM 2. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND PLAN OF OPERATION
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 10-KSB for the period
ending December 31, 1997.
General
- -------
The Company was incorporated on December 22, 1995 in the State of New Jersey
for the purpose of acquiring, developing and selling real estate.
Through its subsidiaries, the Company is engaged in two lines of business;
owning and operating income producing real estate, and the originating and
servicing of loans to businesses, generally secured by real estate or other
business assets ("business lending").
On December 31, 1995, the Company acquired through a subsidiary a controlling
interest in a 124 unit apartment complex. ARCA secured bridge financing to
make certain improvements needed to refinance the property. Upon completion
of the improvements, rents, occupancy and net cash flow increased and the
property was successfully refinanced on September 19, 1997. Subsequent to
the refinancing, the Company has used its positive operating cash flow to
reduce debt.
On March 31, 1998, ARCA formed Beran Corp. and on May 28, 1998, entered into
business lending through the acquisition of the business lending operations of
a real estate development company.
ARCA is pursuing the acquisition of additional properties and businesses.
Results of Operations
- ----------------------
The following discussion is for the six months ending June 30, 1998 and
1997, respectively.
The Company reported total revenues of $395,269 and $362,763 in 1998 and 1997
respectively. Occupancy was approximately 96% and 91%, respectively.
Operating expenses exclusive of interest expense decreased from $315,591 in
1997 to $282,906 in 1998. Net loss decreased from $119,263 in 1997 to $36,969
in 1998. The Company believes that overall, the Company and the industry
will realize modest increases in net rental income and net operating income
in the foreseeable future.
The net loss per share was ($.02) for the first six months in 1998, compared
to a $(.09) net loss for the first six months of 1997.
Interest expense was $149,332 in 1998 and $166,435 in 1997. Going forward,
the Company expects interest expense to decrease from comparable prior periods
as a result of the refinancing which occurred on September 19, 1997.
Funds from operations turned positive in the first six months of 1998. Funds
from operations was $15,186 for the six months ending June 30, 1998, a $33,133
increase over the comparable prior period. Funds from operations is defined
by the Company as income before gains or losses on sales of investments plus
depreciation, less preferred dividends and after adjustment for significant
non-recurring items, if any.
-9-
<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 June 30, 1998, the Company had working capital of $49,080, including cash
held in escrow for anticipated future expenses.
On December 31, 1997, the Company had $61,550 in cash. During the period, the
Company received $25,000 from the issuance of common stock, $10,553 from an
acquisition, and collected $5,000 on notes receivable. The Company used
$6,852 in operating activities, purchased $26,865 of property and equipment,
and paid $1,000 to incorporate Beran Corp. The Company used $9,500 to repay
notes payable, and mortgage debt was reduced by $15,739. Cash decreased by
$19,403. The Company had $42,147 in cash on June 30, 1998, exclusive of
$104,777 in cash held in escrow accounts.
The Company's balance sheet is highly leveraged. The Company plans to reduce
this leverage 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. Since the refinancing which
occurred on September 19, 1998, the Company has generated sufficient income
from operations to service its existing debt. However, if the Company is
unable to generate sufficient income from future 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 cancelled, by mutual agreement, 235,000 of the 1,485,000 shares
which had been issued, for a total consideration of $89,100, to two
consultants that provided services in connection with the Company's
acquisition program. The remaining 1,250,000 shares issued to the other
consultant remain outstanding but subject to repurchase by the Company for
nominal consideration if certain conditions precedent are not fulfilled, and
Harry J. Santoro, President, Treasurer and a director of the Company,
continues to be granted voting rights to such shares until such time as the
conditions precedent are fulfilled or the shares are repurchased.
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.
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) bad debts, (e) uninsurable risks; and (f)
general economic conditions.
-10-
<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
On March 31, 1998, the Company entered into an agreement to acquire all of the
outstanding stock of S&P Custom Homes, Inc. in exchange for 300,000 shares of
the Company's common stock. See Footnotes numbers 2 and 3 to the Financial
Statements for additional information.
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
None
-11-
<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: August 13, 1998 /s/ Harry J. Santoro
----------------------------------------
Harry J. Santoro
President, Chief Executive Officer and
Chief Financial Officer
-12-
<PAGE>
EARNINGS PER SHARE SCHEDULE
EXHIBIT 1
Calculation of net income
Net Income (loss) ($36,969)
Assumed interest expense reduction 0
Assumed interest income increase 0
----------
($36,959)
==========
Calculation of weighted average number of shares
Weighted average shares outstanding 2,131,667
Common stock equivalents 0
----------
2,131,667
==========
Net income (loss) per share
($ 0.02)
==========
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0001006762
<NAME> ARCA CORP.
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 42,147
<SECURITIES> 0
<RECEIVABLES> 7,071
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 266,581
<PP&E> 3,585,056
<DEPRECIATION> 228,833
<TOTAL-ASSETS> 3,720,190
<CURRENT-LIABILITIES> 217,501
<BONDS> 3,556,829
0
0
<COMMON> 239
<OTHER-SE> (54,379)
<TOTAL-LIABILITY-AND-EQUITY> 3,720,190
<SALES> 0
<TOTAL-REVENUES> 395,269
<CGS> 0
<TOTAL-COSTS> 282,906
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 149,332
<INCOME-PRETAX> (39,969)
<INCOME-TAX> 0
<INCOME-CONTINUING> (39,969)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (39,969)
<EPS-PRIMARY> (.02)
<EPS-DILUTED> (.02)
</TABLE>
