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 MARCH 31, 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 2,085,000 shares of common stock, par value $.0001 per share,
outstanding as of March 31, 1998.
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<PAGE>
ARCA CORP. AND SUBSIDIARY
INDEX
PAGE
PART 1. FINANCIAL INFORMATION ----
ITEM 1. FINANCIAL STATEMENTS
ARCA CORP. AND SUBSIDIARY
-------------------------
CONSOLIDATED BALANCE SHEETS AS OF
MARCH 31, 1998 AND 1997.............................3
CONSOLIDATED STATEMENT OF OPERATIONS FOR
THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997......4
CONSOLIDATED STATEMENT OF CASH FLOWS FOR
THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997......5
CONSOLIDATED STATEMENT OF CHANGES IN
STOCKHOLDERS' EQUITY FOR THE THREE MONTHS
ENDED MARCH 31, 1998 AND 1997.......................6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS..........7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS................9
PART II. OTHER INFORMATION.........................................12
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K...........12
SIGNATURES....................................................13
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<PAGE>
ARCA CORP. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
MARCH 31, 1998 AND 1997
(UNAUDITED)
ASSETS
1998 1997
---- ----
Rental property, net of
accumulated depreciation of
$205,249 and $110,744, respectively $3,366,402 $3,409,829
Cash 45,895 39,678
Cash held in escrow 94,468 28,845
Accounts receivable 5,411 10,837
Deferred offering costs 0 30,000
Prepaid expenses 34,139 44,502
Organization Costs, net of accumulated
amortization of $3,375 and $1,875, respectively 4,125 5,666
Deferred financing costs, net of
accumulated amortization of $4,320 and 0 82,011 0
---------- ----------
TOTAL ASSETS $3,632,451 $3,569,357
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Mortgage notes payable $3,414,779 $3,154,949
Accrued interest 31,294 335,982
Note payable -stockholder 150,000 22,700
Note payable -other 32,500 0
Accounts payable 24,260 44,291
Accrued expenses 75,731 54,447
Security deposits payable 55,987 52,178
---------- ----------
TOTAL LIABILITIES 3,784,551 3,664,547
Stockholders' Equity
Common stock, $.0001 par value
50,000,000 shares authorized, 2,085,000 and
500,000 shares issued
and outstanding, respectively 209 52
Additional paid in capital 368,891 222,448
Accumulated deficit (321,200) (177,690)
--------- ---------
47,900 44,810
Stock subscription promissory note receivable (200,000) (140,000)
--------- ---------
TOTAL STOCKHOLDERS' EQUITY (152,100) (95,190)
--------- ---------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $3,632,451 $3,569,357
========== ==========
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<PAGE>
ARCA CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1998
AND MARCH 31, 1997
(UNAUDITED)
1998 1997
---- ----
Revenues
Rental income $197,467 $180,954
Tenant fees and other income 6,060 3,859
Interest income 251 370
-------- -------
TOTAL REVENUE 203,778 185,183
Operating expenses
Administrative expenses 33,878 17,020
Utilities expense 30,807 32,090
Operating and maintenance 27,115 33,566
Taxes and insurance 30,720 35,209
Depreciation and amortization 26,019 22,634
-------- --------
TOTAL OPERATING EXPENSES 148,539 140,519
-------- --------
Operating income 55,239 44,664
Interest expense 74,460 82,942
--------- --------
Loss before minority interest (19,221) (38,278)
--------- --------
Minority interest 0 0
-------- --------
Net loss ($19,221) ($38,278)
========= =========
Net loss per common share - basic ($.009) ($.07)
Average number of common
shares outstanding - basic 2,076,667 502,500
========= =========
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<PAGE>
ARCA CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1998
AND MARCH 31, 1997
(UNAUDITED)
1998 1997
---- ----
Cash flows from operating activities
Net loss ($19,221) ($38,278)
Adjustments to reconcile net loss
to net cash used in operating
activities:
Depreciation and amortization 26,019 22,634
(Increase) decrease in:
Accounts receivable 3,329 4,744
Prepaid expenses 17,396 9,740
Cash held in escrow (16,799) 3,521
Increase (decrease) in:
Accounts payable 5,032 30,185
Accrued expenses (21,571) (4,649)
Accrued interest 4,097 512
Security deposits payable 503 (523)
Other liabilities (3,701) 0
-------- ---------
Net cash provided by (used in)
operating activities (4,916) 27,886
-------- ---------
Cash flows from investing activities:
Deferred offering costs 0 (30,000)
Purchases of property and equipment (13,450) (3,754)
------- -------
Net cash provided by (used in)
investing activities (13,450) (33,754)
Cash flows from financing activities
Repayment of mortgage notes payable (7,789) 0
Proceeds from notes payable 0 2,700
Repayment of notes payable (14,500) 0
Proceeds from issuance of common stock 25,000 10,000
------- -------
Net cash provided by (used in)
financing activities 2,711 12,700
Decrease in cash (15,655) 6,832
Cash, January 1 61,550 32,846
------- -------
Cash, March 31 $45,895 $39,678
======= =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest $70,363 $82,430
======= =======
-5-<PAGE>
ARCA CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM JANUARY 1, 1996 TO MARCH 31, 1998
(UNAUDITED)
<TABLE>
<C> <S> <S> <S> <S> <S> <S>
Stock
Additional Subscription Total
Common Stock Paid-in Promissory Note Accumulated Stockholder's
Shares Amount Capital Receivable Deficit Equity
Balance
01/01/96 320,000 32 72,468 (70,000) 0 2,500
Collection
of stock
subscription 0 0 0 70,000 0 70,000
Issuance of
common stock,
net of related
costs 180,000 18 139,982 (140,000) 0 0
<F1>
Net loss 0 0 0 0 (139,412) (139,412)
________ _____ ________ ________ _________ ________
Balance,
12/31/96 500,000 50 212,450 (140,000) (139,412) (66,912)
Issuance of
shares of
common stock 65,000 7 32,493 0 0 32,500
<F2>
Issuance of
shares of
common stock 1,250,000 125 74,875 (60,000) 0 15,000
Issuance of
shares of
common stock 235,000 23 14,077 0 0 14,100
<F3>
Issuance of
shares of
common stock 10,000 1 9,999 0 0 10,000
Net loss 0 0 0 0 (162,567) (162,567)
________ _____ ________ ________ _________ ________
Balance
12/31/97 2,060,000 206 343,894 (200,000) (301,979) (157,879)
Issuance of
shares of
common stock
<F4> 25,000 3 24,997 0 0 25,000
Net loss 0 0 0 0 (19,221) (19,221)
--------- ----- -------- -------- ----------- ---------
Balance
3/31/98 2,085,000 $209 $368,891 ($200,000) ($321,200) ($152,100)
========= ===== ======== ======== =========== =========
</TABLE>
-6-<PAGE>
<F1> 16,000 shares of stock were issued to Harry J. Santoro, President,
Treasurer and a director of the Company and 24,000 shares were issued
to a consultant for services rendered in connection with the
preparation of the registration statement and prospectus for the
140,000 shares of stock issued on May 31, 1996.
<F2> 50,000 shares of stock were issued to Stephen M. Robinson, P.A. in
partial payment of legal services rendered during the year
ended December 31, 1997. Stephen M. Robinson, P.A. is a law firm whose
sole shareholder is Stephen M. Robinson, the Secretary, Vice President
and a director of the Company. 15,000 shares of stock were issued to
Harry J. Santoro, President, Treasurer and a director of the Company,
for services rendered to the Company during the year ended
December 31, 1997.
<F3> 235,000 shares of stock were issued to a consultant in connection with
registrant's acquisition program.
<F4> 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, the Company's President, and Stephen M.
Robinson, the Company's secretary, are affiliates. S&P Custom Homes,
Inc. merged with the Company pursuant to a merger agreement executed on
April 29, 1998.
-7-
<PAGE>
ARCA CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 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 years 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 sheets as of March
31, 1998 and 1997, the consolidated statements of operations for the three
months ended March 31, 1998 and 1997, the consolidated statement of cash flows
for the three months ended March 31, 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. Related Party Transactions
During the three months ended March 31, 1998, 25,000 shares of stock were
issued for $25,000 in cash to S&P Custom Homes, Inc., a company in which
Harry J. Santoro, the Company's President, and Stephen M. Robinson, the
Company's secretary, are affiliates.
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 OR PLAN OF OPERATION
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.
The Company targets its marketing and business activity to renting apartment
units to moderate income people who are not in a position to acquire a home.
The Company believes that well maintained, affordable rental units will be in
great demand as a result of slow wage growth in the future. This should
provide a stable rental income base and allow for future revenue growth
through modest rental increases near the rate of inflation.
The Company's long range plan is to reduce debt to around fifty percent of a
property's value. To accomplish this, the Company plans to raise additional
capital through the sale of its securities in the future. On September 19,
1997, the Company completed the refinance of the long term debt on its
existing property.
The Company advertises its rental units in local newspapers, by direct mail
and through promotional programs designed to maintain occupancy at or above
95%.
The following discussion and analysis should be read in conjunction with the
Consolidated Financial Statements and Notes thereto appearing elsewhere in
this Form 10-QSB and in the previously filed Form 10-KSB for the period
ending December 31, 1997.
Results of Operations
- ---------------------
The following discussion is for the three months ending March 31, 1998 and
1997, respectively.
The Company reported total revenues of $203,778 and $185,183 in 1998 and 1997
respectively. Occupancy was approximately 96% and 93%, respectively.
Operating expenses exclusive of interest expense increased from $140,519 in
1997 to $148,539 in 1998. Net loss decreased from $38,278 in 1997 to $19,221
in 1998. The Company believes that overall, the Company and the industry
will realize modest increases in net rental income and net operating income
in the foreseeable future.
The net loss per share was ($.009) for the first three months in 1998,
compared to a $(.07) net loss for the first three months of 1997.
Interest expense was $82,942 in 1998 and $74,460 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 three months of 1998.
Funds from operations was $6,798 for the three months ending March 31, 1998,
a $22,442 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 March 31, 1998, the Company had a working capital deficit of $39,859,
including cash held in escrow for anticipated future expenses. The Company
is dependent upon the proceeds from the stock subscription receivable or
other financing to further implement its business plan.
On December 31, 1997, the Company had $61,550 in cash. During the quarter
ending March 31, 1998, the Company received $25,000 in proceeds from the
issuance of common stock. The Company used $4,916 in operating activities and
purchased $13,450 in property and equipment, of which $0 was debt financed.
The Company repaid $22,289 on notes payable. The net decrease in cash was
$15,655. The Company had $45,895 in cash on March 31, 1998, exclusive of cash
held in the 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.
Thereafter, if the Company is unable to generate sufficient income from
operations to service its existing debt, the Company will require additional
financing. The Company has not identified any potential sources of debt or
equity financing and there can be no assurance that the Company will be able
to obtain additional financing if and when needed or that, if available,
financing will be on terms acceptable to the Company.
Forward Looking Statements
- --------------------------
The Company is making this statement in order to satisfy the "safe harbor"
provisions contained in the Private Securities Litigation Reform Act of 1995.
The foregoing discussion includes forward-looking statements relating to the
business of the Company. Forward-looking statements contained herein or in
other statements made by the Company are made based on management's
expectations and beliefs concerning future events impacting the Company and
are subject to uncertainties and factors relating to the Company's operations
and business environment, all of which are difficult to predict and many of
which are beyond the control of the Company, that could cause actual results
of the Company to differ materially from those matters expressed in or implied
by forward-looking statements. The Company believes that the following
factors, among others, could affect its future performance and cause actual
results of the Company to differ materially from those expressed in or implied
by forward-looking statements made by or on behalf of the Company: (a) the
effect of changes in interest rates; (b) the rental rate and demand for
apartment rental units; (c) fluctuations in the costs to operate the
properties owned by the Company; (d) uninsurable risks; and (e) general
economic conditions.
-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. S&P Custom Homes, Inc. is a home
builder and specialty finance company in which Harry J. Santoro, the
Company's President, and Stephen M. Robinson, the Company's secretary, are
affiliates. The acquisition was approved by the shareholders of S&P Custom
Homes, Inc. on April 29, 1998. Documents to effect the merger have been
executed by all parties and the Company is in the process of making the
requisite filings. As a result of this transaction, Harry J. Santoro will
receive an additional 50,640 shares of the Company's common stock, and
Stephen M. Robinson will receive an additional 69,370 shares of the Company's
common stock.
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 1 - Earnings Per Share Schedule
Exhibit 10.15 - Agreement of Merger
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: May 5, 1998 /s/ Harry J. Santoro
----------------------------------------
Harry J. Santoro
President, Chief Executive Officer and
Chief Financial Officer
-12-
EARNINGS PER SHARE SCHEDULE
Calculation of net income
Net Income (loss) ($19,221)
Assumed interest expense reduction 0
Assumed interest income increase 0
---------
($19,221)
=========
Calculation of weighted average number of shares
Weighted average shares outstanding 2,076,667
Common stock equivalents 0
----------
2,076,667
==========
Net income (loss) per share
($ 0.009)
==========
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0001006762
<NAME> ARCA CORP.
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 45,895
<SECURITIES> 0
<RECEIVABLES> 5,411
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 179,913
<PP&E> 3,571,651
<DEPRECIATION> 205,249
<TOTAL-ASSETS> 3,632,451
<CURRENT-LIABILITIES> 219,772
<BONDS> 3,564,779
0
0
<COMMON> 209
<OTHER-SE> (152,309)
<TOTAL-LIABILITY-AND-EQUITY> 3,632,451
<SALES> 0
<TOTAL-REVENUES> 203,778
<CGS> 0
<TOTAL-COSTS> 148,539
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 74,460
<INCOME-PRETAX> (19,221)
<INCOME-TAX> 0
<INCOME-CONTINUING> (19,221)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (19,221)
<EPS-PRIMARY> (.009)
<EPS-DILUTED> (.009)
</TABLE>
