FORM 10-QSB
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
XX QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
- -- ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 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 2,390,000 shares of common stock, par value $.0001 per share,
outstanding as of September 30, 1998.
-1-
<PAGE>
ARCA CORP. AND SUBSIDIARIES
INDEX
PAGE
PART 1. FINANCIAL INFORMATION ----
ITEM 1. FINANCIAL STATEMENTS
ARCA CORP. AND SUBSIDIARIES
-------------------------
CONSOLIDATED BALANCE SHEETS AS OF
SEPTEMBER 30, 1998 AND 1997..........................3
CONSOLIDATED STATEMENTS OF OPERATIONS FOR
THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997....4
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR
THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997....5
CONSOLIDATED STATEMENT OF CHANGES IN
STOCKHOLDERS' EQUITY FOR THE PERIOD COMMENCING
JANUARY 1, 1997 AND ENDING
SEPTEMBER 30, 1998 ..................................6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS...........7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS.................8
PART II. OTHER INFORMATION.........................................10
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K...........10
SIGNATURES....................................................11
-2<PAGE>
ARCA CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1998
(UNAUDITED)
ASSETS
1998 1997
---- ----
Rental property, net of
accumulated depreciation of
$252,617 and $152,025, respectively $3,343,341 $3,370,742
Cash 64,185 28,131
Cash held in escrow 64,325 70,568
Marketable Securities 7,155 0
Notes receivable 40,000 0
Accounts receivable 11,169 4,743
Prepaid expenses 56,581 80,939
Organization Costs, net of accumulated
amortization of $4,125 and $2,625, respectively 3,375 4,875
Deferred financing costs, net of
accumulated amortization of $9,280 and -0- 89,843 86,331
---------- ----------
TOTAL ASSETS $3,679,974 $3,646,329
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Mortgage notes payable $3,398,713 $3,427,673
Accrued interest 38,183 0
Note payable -stockholder 162,000 177,500
Note payable -other 18,500 0
Accounts payable 15,217 15,267
Accrued expenses 52,787 69,774
Security deposits payable 58,323 52,643
---------- ----------
TOTAL LIABILITIES 3,743,723 3,742,857
Minority interest 9,943 0
Stockholders' Deficit
Common stock, $.0001 par value
50,000,000 shares authorized, 2,390,000 and
500,000 shares issued
and outstanding, respectively 239 206
Additional paid in capital 484,592 343,894
Accumulated deficit (358,500) (240,628)
--------- ---------
126,331 103,472
Less 235,000 and -0- shares of treasury
stock, at cost (23) 0
Less stock subscription receivable (200,000) (200,000)
--------- ---------
TOTAL STOCKHOLDERS' DEFICIT ( 73,692) (96,528)
--------- ---------
TOTAL LIABILITIES AND
STOCKHOLDERS' DEFICIT $3,679,974 $3,646,329
========== ==========
-3-
ARCA CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
AND SEPTEMBER 30, 1997
(UNAUDITED)
1998 1997
---- ----
Revenues
Rental income $571,973 $540,698
Tenant fees and other income 24,765 11,029
Interest income 1,335 989
-------- -------
TOTAL REVENUE 598,073 552,716
Operating expenses
Administrative expenses 102,672 121,864
Utilities expense 61,264 64,871
Operating and maintenance 92,479 99,218
Taxes and insurance 94,008 102,347
Depreciation and amortization 79,097 67,076
-------- --------
TOTAL OPERATING EXPENSES 429,520 455,376
-------- --------
Operating income 168,553 97,340
Other Income (Expense)
Environmental remediation expense 0 (111,974)
Interest expense (225,131) (249,508)
--------- --------
Total other income (expense) (225,131) (361,482)
Loss before extraordinary item (56,578) (264,142)
Extraordinary Item -
Net gain on extinguishment of debt 0 162,926
--------- --------
Loss before minority interest (56,578) (101,216)
Minority interest 57 0
-------- --------
Net loss ($ 56,521) ($101,216)
========= =========
Net loss per common share - basic ($.03) ($.07)
Average number of common
shares outstanding - basic 2,139,444 1,516,667
========= =========
-4-
<PAGE>
ARCA CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
AND SEPTEMBER 30, 1997
(UNAUDITED)
1998 1997
---- ----
Cash flows from operating activities
Net loss ($ 56,521) ($101,216)
Adjustments to reconcile net loss
to net cash used in operating
activities:
Minority interest in net loss of
consolidated subsidiary (57) 0
Stock compensation expense 0 46,600
Environmental remediation expense 0 101,081
Depreciation and amortization 79,097 67,076
Gain on extinguishment of debt 0 (162,926)
(Increase) decrease in:
Accounts receivable (2,429) 10,838
Prepaid expenses (4,083) (2,497)
Cash held in escrow 13,344 10,841
Increase (decrease) in:
Accounts payable (4,011) 1,161
Accrued expenses (48,115) 203
Accrued interest 10,986 0
Other liabilities (3,701) 0
Security deposits payable 2,839 (58)
-------- ---------
Net cash used in operating activities (12,651) (28,897)
-------- ---------
Cash flows from investing activities:
Cash received from acquisition 10,553 0
Purchases of property and equipment (37,757) (8,318)
Purchases of marketable securities (7,155) 0
Loans made (40,000) 0
Collection of notes receivable 95,000 0
------- -------
Net cash provided by (used in)
investing activities 20,641 (8,318)
Cash flows from financing activities
Repayment of mortgage notes payable (23,855) 0
Proceeds from notes payable 0 7,500
Proceeds from issuance of common stock 25,000 25,000
Repayments of notes payable (28,500) 0
Proceeds from stockholder 12,000 0
Minority interest investment 10,000 0
------- -------
Net cash provided by (used in)
financing activities (5,355) 32,500
Increase (decrease) in cash 2,635 (4,715)
Cash, beginning 61,550 32,846
------- -------
Cash, September 30, 1998 and 1997 $64,185 $28,131
======= =======
-5-<PAGE>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
1998 1997
---- ----
Cash paid for interest $214,145 $247,129
======= =======
Cash paid for income taxes $400 $305
======= =======
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Issuance of 25,000 shares of common stock $25,000 $ 85,000
Stock subscription promissory note receivable 0 (60,000)
------- -------
Proceeds from issuance of common stock $25,000 $25,000
======= =======
Issuance of -0- and 300,000 shares of
common stock as partial payment of legal
and professional fees $ 0 $46,600
======= =======
Debt incurred for environmental
remediation expenses incurred $ 0 $101,081
======= =======
Acquisition of S&P Custom Homes, Inc. during the nine months ended September
30, 1998
Issuance of common stock $140,708
Acquisition of common stock (25,000)
Notes receivable (95,000)
Other current assets (963)
Deferred financing costs (12,792)
Accrued expenses 3,600
--------
Cash received from acquisition $ 10,553
========
During the nine months ended September 30, 1997, the Company refinanced its
existing debt as follows:
Proceeds from new first mortgage note $2,500,000
Partial repayment of original first mortgage note (2,227,276)
Increase in cash held in escrow (49,043)
Increase in prepaid expenses (24,200)
Increase in deferred financing costs (86,331)
Decrease in accrued interest (324,995)
Decrease in note payable - RPI (101,081)
Increase in note payable - stockholder 150,000
---------
Gain on forgiveness of debt ($162,926)
=========
-6-
<PAGE>
ARCA CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM JANUARY 1, 1997 TO SEPTEMBER 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)
-7-<PAGE>
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> 0 0 23 0 0 235,000 (23) 0
Net loss 0 0 0 0 (56,521) 0 0 (56,521)
--------- ----- -------- -------- ----------- ______ ______ ________
Balance
9/30/98 2,390,000 $239 $484,592 ($200,000) ($358,500) 235,000 (23) ($73,692)
========= ===== ======== ======== =========== ======== ====== ========
</TABLE>
-8-<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.
-9-<PAGE>
ARCA CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 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 September
30, 1998 and 1997, the consolidated statement of operations for the nine months
ended September 30, 1998 and 1997, the consolidated statement of cash flows for
the nine months ended September 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.
-10-<PAGE>
During the nine months ended September 30, 1998, Stephen M. Robinson,
Secretary, Vice President and a director of the Company, advanced $12,000 to
the Company pursuant to a demand promissory note which bears interest at 12%
per annum.
During the nine months ended September 30, 1998, a company owned by Harry J.
Santoro, President, Treasurer and a director of the Company, advanced $6,000
to the Company pursuant to a demand promissory note which bears interest at 12%
per annum.
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.
-11-<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 nine months ending September 30, 1998 and
1997, respectively.
The Company reported total revenues of $598,073 and $552,716 in 1998 and 1997
respectively. Occupancy was approximately 96% and 92%, respectively.
Operating expenses exclusive of interest expense decreased from $455,376 in
1997 to $429,520 in 1998. Net loss decreased from $101,216 in 1997 to $56,521
in 1998. The Company believes that overall, the Company and the industry
will realize modest increases in net rental income and net operating income
in the foreseeable future.
The net loss per share was ($.03) for the first nine months in 1998, compared
to a $(.07) net loss for the first nine months of 1997.
Interest expense was $225,131 in 1998 and $249,508 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 nine months of 1998. Funds
from operations was $22,576 for the nine months ending September 30, 1998, a
$51,068 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.
-12-<PAGE>
The Company believes that FFO is helpful to investors as a measure of
performance because, along with cash flows from operating activities, financing
activities and investing activities, it provides investors with an
understanding of the ability of the Company to incur and service debt and to
make capital expenditures. FFO in and of itself does not represent cash
generated from operating activities in accordance with GAAP and therefore
should not be considered an alternative to net income as an indication of the
Company's performance or to net cash flows from operating activities as
determined by GAAP as a measure of liquidity and is not necessarily indicative
of cash available to fund cash needs. The Company's calculation of FFO may
differ from the methodology for calculating FFO utilized by other real estate
companies, and accordingly, may not be comparable to such other companies.
The Company is taxed as a C-corporation for federal and state income tax
purposes. As such, the Company will pay taxes on its net income as defined by
the Internal Revenue Code. No tax attributes of the Company flow through to
the shareholders except for the regular taxation of dividends paid, if any.
Liquidity and Capital Resources
- --------------------------------
At September 30, 1998, the Company had working capital of $16,266, 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 used $12,651 in operating activities. Investing activities provided
net cash of $20,641. The Company used $5,355 in financing activities. Cash
increased by $2,635. The Company had $64,185 in cash on September 30, 1998,
exclusive of $64,325 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 cash flow
from operations to service its existing debt. However, if the Company is
unable to generate sufficient cash flow 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.
-13-
<PAGE>
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 which relates to such refinance.
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. Without limiting the generality of the foregoing, such
information can be identified by the use of forward-looking terminology such
as "anticipate", "will", "would", "expect", "intend", "plans to" or "believes",
or other variations thereon, or comparable terminology. 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.
-14-<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.
On October 1, 1998, the Company entered into an agreement to acquire Allied
American Capital corporation in exchange for 10,450,000 shares of the Company's
common stock. The acquisition by ARCA is subject to regulatory approvals and
Allied raising a net of approximately $29,000,000 by November 24, 1998. There
can be no assurance that such regulatory approvals will be obtained, or that
Allied will secure financing, or if financing becomes available, that it will
be on acceptable terms. For more information on this acquisition, see the
Information Statement dated November 2, 1998 attached to this Form 10-QSB as
Exhibit 10.16.
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 11.01 - Earnings Per Share Schedule
Exhibit 10.16 - Information Statement dated November 2, 1998
Exhibit 27FDS - Financial Data Schedule
(b) Reports on Form 8-K
October 6, 1998 - Press release re acquisition of Allied American
Capital Corporation
-15-<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
ARCA CORP.
Dated: November 13, 1998 /s/ Harry J. Santoro
----------------------------------------
Harry J. Santoro
President, Chief Executive Officer and
Chief Financial Officer
-16-<PAGE>
EXHIBIT 11.01
EARNINGS PER SHARE SCHEDULE
Calculation of net income
Net Income (loss) ($56,521)
Assumed interest expense reduction 0
Assumed interest income increase 0
---------
($56,521)
=========
Calculation of weighted average number of shares
Weighted average shares outstanding 2,139,444
Common stock equivalents 0
----------
2,139,444
==========
Net income (loss) per share
($0.03)
==========
<PAGE>
EXHIBIT 10.16
INFORMATION STATEMENT
ARCA Corp.
215 West Main Street
Maple Shade, NJ 08052
(609) 667-0600
Fax: (609) 727-0218
INFORMATION STATEMENT
November 2, 1998
To the Holders of Common Stock:
The following Information Statement is being mailed to the shareholders
of record of ARCA Corp. ("ARCA") in connection with the proposed acquisition
of Allied American Capital Corporation.
Since the acquisition agreement requires various corporate actions, some
of which required shareholder approval of the transaction, ARCA is providing
this Information Statement to its shareholders.
ARCA Intends to Acquire Allied American Capital Corporation
- -----------------------------------------------------------
ARCA has entered into an agreement to acquire Allied American Capital
Corporation in exchange for 10,450,000 shares of ARCA's common stock.
Allied American Capital Corporation, a privately held Texas-based
corporation, was formed in January 1998 for the specific purpose of acquiring
life insurance companies and related enterprises. On June 25, 1998, Allied
entered into an acquisition agreement to acquire a majority interest in three
life insurance companies for an aggregate purchase price of $18,705,000 plus
approximately 925,000 shares of Allied stock. Allied has no current business
activities.
In order for the shareholders to understand the effect of the Allied
acquisition, we have prepared a summary of the transaction and presentation
which not only discusses Allied, but provides information concerning the effect
upon ARCA after the acquisition of Allied. See the section entitled "Pro Forma
Presentation" for such summary.
The acquisition will not take place unless Allied has been able to raise
approximately $29 million to acquire the Insurance Companies.
Based upon information provided by Allied to ARCA's Board of Directors,
the Board was satisfied that there was at least a reasonable likelihood that
the financing would be accomplished, and in view of certain time constraints
imposed upon the transaction, has decided to move forward to put the necessary
corporate actions of ARCA in place notwithstanding this substantial
contingency.
In the event that Allied is unable to raise the $29 million by November
15, 1998, ARCA will have the right to terminate the acquisition agreement.
If the acquisition agreement is terminated, the Board believes that the
various corporate actions by ARCA will nevertheless provide positive benefits
to the Corporation.
The Proposed Corporate Actions of ARCA
- --------------------------------------
All of the corporate actions set forth below have been approved by the
ARCA Board of Directors, as well as shareholders holding a majority of the
shares of ARCA common stock. No further approval is necessary by the
shareholders, but the non-consenting shareholders are entitled to be informed
of such corporate actions in advance of the date such actions will be effective
and, under New Jersey law, to certain dissenters' rights.
WE ARE NOT ASKING YOU FOR A PROXY, AND YOU ARE REQUESTED NOT TO SEND IN
A PROXY.
Preferred Stock.
- ---------------
The Certificate of Incorporation will be amended to create 10,000,000
shares of "blank check" preferred stock. The term "blank check" means that the
Board of Directors of the Corporation will be able to set all of the rights and
preferences of the preferred stock as needed by the Corporation. If the Allied
acquisition closes, the preferred stock will be utilized as part of the $29
million funding. If the Allied acquisition does not close, the blank check
preferred stock will provide a useful tool for the Corporation.
Reorganization and Stock Dividend.
- ---------------------------------
Allied has indicated that it does not desire to operate the Company's
apartment complex or its finance business, and has made it a condition of the
acquisition agreement that the Company divest itself of such businesses. The
Board of Directors believes that the current businesses of the Company are
viable, and therefore, rather than seeking a private purchaser, has determined
to transfer all of the assets and liabilities of ARCA to a new Delaware
corporation named APTA Holdings, Inc. All shareholders of record on a date as
may be determined by the Board of Directors (the "Dividend Record Date") will
receive one share of APTA Holdings, Inc. for each share of ARCA's common stock
held on the Dividend Record Date. For all practical purposes, APTA Holdings,
Inc. will be identical, in terms of business and management, to ARCA prior to
the acquisition. However, APTA will not initially be quoted on the OTC
Bulletin Board; nor, pending the filing of a Form 10, will it be a reporting
company. The Company intends to cause APTA Holdings, Inc. to file a Form 10
with the Securities and Exchange Commission to become a reporting company, and
to thereafter seek inclusion on the OTC Bulletin Board. In accordance with the
S.E.C. Rules, actual distribution of the APTA Holdings stock will not occur
until the Form 10 becomes effective. It should be noted, however, that the
existing ARCA shares which you will keep will continue to be quoted on the OTC
Bulletin Board, and after the acquisition of Allied, would be traded under that
company's name. Thus shareholders, upon successful completion of the Allied
acquisition, will own shares both in Allied and in APTA Holdings. If the
acquisition is completed, Allied management will thereafter become management
of the Company and will operate the Insurance Companies, and the present
management of ARCA will continue to operate the apartment complex and the
finance company under APTA Holdings. In the event that the Allied acquisition
does not occur, then the Company will let the transfer of its business to APTA
Holdings remain, but APTA Holdings will remain a wholly owned subsidiary of
ARCA unless the Board of Directors determines that it is in the best interest
of the Company to proceed with the reorganization.
Name Change.
- -----------
An amendment to the Certificate of Incorporation to change the name from
ARCA Corp. to Allied American Capital Corporation, or such other name as is
approved by the Board of Directors, has also been approved by the shareholders
and the Board of Directors. In the event that the Allied acquisition is
completed, it is likely that the Company's name will be changed to Allied
American Capital Corporation. If the Allied acquisition does not occur, the
Company's name will remain ARCA Corp.
Dissenters' Rights
- ------------------
As indicated previously, the acquisition agreement has been approved by
shareholders holding a majority of the shares of ARCA Corp. However, under
N.J.S.A. 14:A10-3, you are entitled to dissent from the acquisition agreement
and to be paid the fair value of your shares of ARCA.
To assert and enforce this right, you are required, under New Jersey law,
to follow the following procedure: deliver to Harry J. Santoro, at 215 West
Main Street, Maple Shade, New Jersey, 08052, prior to the Dividend Record Date
(as provided in a notice which will be sent to you), your written notice of
dissent, stating that you intend to demand payment for the fair value of your
shares, together with your stock certificate(s) and a Medallion-guaranteed
stock power for such certificate(s).
The fair value of your shares for which you will have demanded payment was
determined on November 2, 1998, the date of approval of the acquisition
agreement by the shareholders. At that date, the common stock of ARCA was
being quoted on the OTC Bulletin Board at a bid price of $.25 per share.
Prior to that date, there were a limited number of trades at prices ranging
from $.75 to $1.0625 per share.
ARCA's Present Business
- -----------------------
The most complete source of information concerning ARCA is contained in
the Company's Form 10KSB filed with the S.E.C. for the period ending December
31, 1997, and the subsequent filings made with the S.E.C., all of which can be
found on the S.E.C.'s "EDGAR" system by accessing the following web site:
http://www.sec.gov/cgi-bin/srch-edgar?0001006762
Upon request, ARCA will supply a copy of any of such documents to a
shareholder who does not have Internet access.
Forward Looking Statements
- --------------------------
Certain statements made in this Information Statement are "forward looking
statements". Without limiting the generality of the foregoing, such
information can be identified by the use of forward- looking terminology such
as "anticipate", "will", "would", "expect", "intend", "plans to" or "believes",
or other variations thereon, or comparable terminology. Actual results,
performance or developments may differ materially from those expressed or
implied by such forward-looking statements as a result of market uncertainties
or industry factors. Some important factors that may cause actual results that
differ materially from those in any forward-looking statements may include the
availability of financing in the time frame required, market acceptance of
Allied's products and services , competitive pressures, and the ability to
attract and retain key executive sales and management personnel. ARCA
disclaims any obligation or responsibility to update any such forward-looking
statements.
Allied American Capital Corporation
a Texas Corporation
PRO FORMA PRESENTATION
THIS INFORMATION STATEMENT HAS BEEN PREPARED AS IF ALLIED HAD ACQUIRED MAJORITY
CONTROL IN THE LIFE INSURANCE COMPANIES AND RAISED A MINIMUM OF $29 MILLION AS
PROVIDED HEREIN, AND HAD BEEN ACQUIRED BY ARCA CORP. ACCORDINGLY, THE
INFORMATION PRESENTED IN THIS INFORMATION STATEMENT GIVES EFFECT ON A PRO FORMA
BASIS TO THE TERMS OF THE FOLLOWING AGREEMENTS AS IF THEY OCCURRED ON AUGUST
31, 1998:
1. THE 1998 STOCK PURCHASE AND SALE AGREEMENT REGARDING THE LIFE
INSURANCE COMPANIES DATED JUNE 25, 1998 (hereinafter referred to as the "Life
Insurance Companies Stock Purchase Agreement"); and
2. THE STOCK PURCHASE AGREEMENT AND PLAN OF REORGANIZATION BETWEEN ARCA CORP.
AND ALLIED AMERICAN CAPITAL CORPORATION DATED SEPTEMBER 28, 1998 (hereinafter
referred to as the "ARCA Stock Purchase Agreement") .
The acquisition of Allied by ARCA is subject to regulatory approvals and Allied
raising a net of approximately $29,000,000 by November 24, 1998. There can be
no assurance that such regulatory approvals will be obtained, or that Allied
will secure financing, or if financing becomes available, that it will be on
acceptable terms.
The Company
Allied American Capital Corporation is a Texas corporation headquartered in
Bedford, Texas, whose ownership control is held by William C. Meier, Wayne E.
Williams and Stanley E. Corvin, Jr. Allied commenced business in January 1998
for the specific purpose of acquiring life insurance companies and related
enterprises. On June 25, 1998 Allied negotiated an acquisition agreement which
involves the purchase of majority control in three life insurance companies
having common ownership and management control. The three companies are
headquartered in Dallas, Texas. On August 3, 1998, Allied negotiated a
contract with a company to originate and process "niche" loans offered through
a United States Government Guaranteed Loan program. Allied intends to
incorporate, immediately following the closing of the Offering, two insurance
agencies, Premier Marketing Alliance, Inc.("PMA") and Premier Marketing
Alliance, Inc. of Texas ("PMATX") (also collectively referred to herein as the
"Marketing Companies"), and a separate finance company, Allied American
Financial Corporation ("Allied Financial"). At present, Allied has no other
current business activities.
Allied intends to raise minimum net proceeds for the Company of at least
$29,000,000, or maximum net proceeds of $33,800,000, by a private offering (the
"Proposed Offering") to consummate the aforementioned pending acquisition and
fund its finance subsidiary operations. In connection with the acquisition
transaction, Allied (pursuant to the ARCA Stock Purchase Agreement) will become
a wholly owned subsidiary of ARCA. At the time of acquisition, ARCA will have
no business activities. Concurrent with the acquisition, ARCA will change its
corporate name to Allied American Capital Corporation and assume the on-going
operations of Allied. Allied will operate as a publicly traded holding company
(the "Holding Company") concentrating in the sale and distribution of life,
health, accident and other insurance products utilizing its various insurance
companies and its wholly-owned Marketing Companies as well as financing
activities in its finance affiliate.
The combined purchase price offered by Allied for the Life Insurance Companies,
which includes the estimated costs of acquiring all minority interests,
approximates $18,101,896 in cash, an eighteen (18) month note in the amount of
$1,055,000 and 925,000 shares of Allied Common Stock. The Life Insurance
Companies reported approximately $1,440,000 of combined statutory net income
in 1997 and $697,000 for the eight months ended August 31, 1998. Earnings
reported under generally accepted accounting principles ("GAAP") for the
companies are similar to statutory earnings. The majority of the Life Insurance
Companies' earnings are derived from their combined $25,000,000 investment
portfolio consisting primarily of high grade government-backed securities. For
the eight months ended August 31, 1998, the companies experienced an average
annual yield on their invested assets of approximately 7.12%.
The Life Insurance Companies have sold only minimal new insurance business over
the last three years and lack a viable sales force. New individual health
insurance products, utilizing the Association Group concept and Preferred
Provider Organization ("PPO") claim cost controls, are currently being sold,
however, new production volume is de minimus. The products appear only
marginally competitive and marketable for the near term, but do allow for
reasonable and acceptable underwriting risk. Subsequent to the acquisition
closing, Allied will file and introduce several new insurance products under
a new and more aggressive marketing program.
The Company's growth strategy for its Insurance Subsidiaries will focus on
finalizing its contract with a national independent agency distribution
network, expanding such network and continually identifying and evaluating new
products and acquisition opportunities that are consistent with the Company's
objective of providing a full range of life, health and other insurance and
financial products.
Allied's wholly-owned finance company, Allied Financial, will initially conduct
its operations under two separate finance divisions: the Rural Development Loan
Division and the Mortgage Banking Division. In August 1998, Allied
consummated an agreement with Economic Development Capital Corporation
("EDCC"), a Plano, Texas based company, to fund commercial loans. EDCC is a
start up company and is owned by Stanley E. Corvin, Jr., a current shareholder
of the Company. EDCC plans to engage in the business of originating,
processing, closing and servicing loans guaranteed by the Full Faith and Credit
of the United States Government through the United States Department of
Agriculture's program identified as a Rural Development Guaranteed Loan
Program.
Allied Financial's Mortgage Banking Division will concentrate its activities
and financial resources in both the origination of, and bulk purchase and sale
of, single family loans (both first and second lien mortgages). WCM
Investments, Inc., a company owned and controlled by William C. Meier, is
currently affiliated, through a one-third ownership interest, with Great Oak
Mortgage Company, L.C., a mortgage company that underwrites and sells single
family mortgages in Texas. The operations of Great Oak Mortgage Company, L.C.
is expected to be purchased by the Company in early 1999. Another business
objective for the Mortgage Banking Division will be to package single family
loans for securitization in minimum amounts of $5 million per loan group and
market these securitized loan packages to investors based on underwriting
criteria pre-approved by the investor.
Management believes that not only will each of the Company's wholly-owned
subsidiaries contribute positive and independent results to the Company's
overall results of operations, but the activities of each subsidiary will also
compliment and provide cross selling and investment opportunities for each
other.
Selected Financial Information
The following table sets forth combined summary historical financial and
operating information, presented on a basis of Statutory Accounting Principles,
of the Life Insurance Companies to be purchased by the Company. The following
information should be read in conjunction with the financial statements and
other related financial information presented elsewhere in this Information
Statement.
Statement of Operations Data:
Year Ended Eight Months Ended
December 31 August 31
1996 1997 1998
---- ---- ----
Earned Premiums $7,269,300 $5,805,485 $3,266,123
Net Investment Income 1,937,591 1,769,187 1,073,383
Total Revenues 9,280,743 7,631,499 4,389,705
Policy Benefits and Claims 4,839,080 3,349,391 2,247,775
Other Insurance Benefits 2,613,022 2,690,685 1,468,822
Total Expenses 7,452,102 6,040,076 3,716,597
Net Realized Investment Gains 246,742 42,682 127,007
Net Income 1,901,280 1,440,698 696,957
____________________________
Statement of Admitted Assets,
Liabilities and Capital and Surplus Data:
Year Ended Eight Months Ended
December 31 August 31
1996 1997 1998
---- ---- ----
Cash and Cash Equivalents $2,819,177 $3,590,250 $3,827,043
Other Invested Assets 21,147,543 21,828,790 21,195,488
Total Admitted Assets 27,378,383 28,128,986 26,862,481
Policy Benefit and Claim Reserves 10,080,014 8,948,386 7,600,299
Total Liabilities 11,120,170 9,908,477 8,356,497
Total Admitted Capital and Surplus 16,258,213 18,220,509 18,505,984
Outline of The Proposed Offering
Securities Offered . . . . . . A Minimum of 34,483 and a Maximum of 40,000
Shares of Series A 7.5% Cumulative Convertible
Preferred Stock, Non- Voting, $.01 par value
per share, liquidation preference $1,000 per
share
Price per Share . . . . . . . $1,000
Use of proceeds
(at minimum level) . . . . . . Cash for Purchase of
Majority Control of
Life Insurance Companies . . . . . .$17,650,000
Provide Funding for Purchase
of Minority Interests of
Life Insurance Companies . . . . . . . 451,896
Provide Funding for Purchase
of Additional Life Insurance
Company . . . . . . . . . . . . . 1,600,000
Provide Warehouse Funding for
Government Loan Program . . . . . . 5,000,000
Enhance Statutory and
Working Capital. . . . . . . . . . . 4,298,104
---------
$29,000,000
===========
Shares outstanding
(pro forma). . . . . . . . . . Common Stock - 13,530,000 shares
Shares outstanding after
Offering (pro forma). . . . . .Common Stock - 13,530,000 shares
Series A Preferred Stock - 34,483 shares
(minimum level)
Series A Preferred Stock - 40,000 shares
(maximum level)
Conversion . . . . . . . . . . Each share of Series A Preferred Stock may, at
any time, at the option of the holder thereof,
be converted into shares of Common Stock. Each
share of Series A Preferred Stock shall be
convertible into a number of fully-paid and
nonassessable shares of Common Stock equal to
the result obtained by dividing the Liquidation
Preference plus accrued but unpaid dividends by
the Conversion Price.
Conversion Price . . . . . . . $3.629764 per share
Exchange . . . . . . . . . . . The shares of Series A Preferred Stock will be
exchanged for substantially identical Series A
Preferred Stock of ARCA Corp. immediately after
issuance. It is anticipated that Allied will
be acquired by ARCA prior to, or simultaneously
with, the closing of this Offering.
Ranking. . . . . . . . . . . . The Series A Preferred Stock shall rank, with
respect to the payment of dividends and the
distribution of assets upon dissolution,
liquidation or winding up of Allied, prior to
all shares of Junior Stock (including the
Common Stock).
ALLIED AMERICAN CAPITAL CORPORATION
Pro Forma Condensed Consolidated Balance Sheets
The accompanying unaudited condensed pro forma balance sheets of the Company
as of August 31, 1998 have been derived by the Company from the actual balance
sheet of the Company at August 31, 1998, and adjusts such information to give
effect to the following transactions as if they had occurred on August 31,
1998:
* The Life Insurance Companies were acquired pursuant to the terms of
the Life Insurance Companies Stock Purchase Agreement;
* Allied was acquired by ARCA pursuant to the ARCA Stock Purchase
Agreement;
* Closing has taken place in respect of the Offering described
herein; and
* The Life Insurance Companies reported their combined financial
position utilizing generally accepted accounting principles
("GAAP").
The summary condensed pro forma balance sheets are presented for informational
purposes only and are not necessarily indicative of actual results that would
have been achieved had the acquisition and related transactions closed on the
dates assumed. In addition, the pro forma financial information does not
purport to be indicative of the results of operations which may be achieved in
the future.
The condensed pro forma balance sheets have been prepared on the basis of
Generally Accepted Accounting Principles and adjustments as provided herein.
Selected Financial Data
The unaudited combined statutory selected financial information of the Life
Insurance Companies as of August 31, 1998 and for the eight months in the
period then ended, and for each of the two years in the period ended December
31, 1997 as presented on page 7, have been prepared in conformity with
accounting practices prescribed or permitted by the Texas and Oklahoma
Departments of Insurance. Prescribed Statutory Accounting Practices ("SAP")
include a variety of publications of the National Association of Insurance
Commissioners (NAIC), as well as state law, regulations and general
administrative rules. Permitted Statutory Accounting Practices encompass all
accounting practices not so prescribed. These accounting practices differ in
some respects from Generally Accepted Accounting Principles (GAAP). Some of
the more significant differences are as follows:
* Under SAP, aggregate reserves for life, accident and health policies
are based on statutorily allowed mortality and morbidity tables as appropriate,
and prescribed future investment yields which may differ from reserves valued
according to GAAP which also gives consideration to estimates of policy
withdrawals.
* Under SAP, policy acquisition costs, such as commissions,
underwriting and other costs incurred in connection with acquiring new
business, are charged to current operations as incurred. Under GAAP, these
costs are deferred and amortized over the policy term to provide matching of
revenue and expenses.
* Certain assets designated as "non-admitted", if any, are charged to
surplus under SAP. Under GAAP, these assets less applicable allowance accounts
are restored to the balance sheet.
* Under SAP, deferred income taxes are not provided on timing
differences between statutory and taxable income and on unrealized investment
gains and losses. Under GAAP, deferred taxes, if any, are provided on the
differences between GAAP and taxable income, and on unrealized investment gains
and losses.
* Under GAAP, Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities", addresses
the accounting and reporting for investments in equity securities that have
readily determinable fair values and for all investments in debt securities.
The Company's investments in debt and equity securities are classified as
available for sale securities. Under GAAP, securities classified as available
for sale must be reported at market value with the unrealized gains and losses
excluded from earnings and reported in a separate component of stockholder's
equity. SAP does not require the classification of debt and equity securities
into specific categories. Therefore, valuation differences may exist between
reporting on SAP versus GAAP.
* Valuation allowances for potential market value declines and
interest rate reductions on certain invested assets are required be reflected
by formulae under SAP. Under GAAP, these valuation allowances are not required.
* Certain reinsurance transactions recognized for SAP are not recorded
under GAAP.
* Companies and affiliates owned by a common parent are normally
consolidated under GAAP reporting purposes. Insurance company financial
statements prepared under SAP are normally prepared on an individual company
basis.
* Under GAAP, earnings per share and other amounts relating to
shareholder values for publicly traded companies are normally reflected in the
financial statements. Such presentations are not made in financial statements
prepared using SAP, which are used primarily for policyholder protection
purposes by state regulatory authorities.
<PAGE>
ALLIED AMERICAN CAPITAL CORPORATION
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF AUGUST 31, 1998
(UNAUDITED)
PRO FORMA
AS ADJUSTED
ACTUAL MINIMUM MAXIMUM
------ ------- -------
ASSETS
Cash and cash equivalents $1,000 $15,367,282 $20,167,282
Other invested assets 21,953,779 21,953,779
Other assets 1,216,947 1,216,947
Goodwill and other intangible assets 10,203 650,000 650,000
--------- ----------- -----------
TOTAL ASSETS $11,203 $39,188,009 $43,988,009
========= =========== ===========
LIABILITIES
Note payable $ 1,055,000 $ 1,055,000
Claim and Benefit Reserves 6,538,321 6,538,321
Other liabilities 10,203 247,250 247,250
Minority interest 451,896 451,896
--------- ----------- -----------
TOTAL LIABILITIES 10,203 8,292,467 8,292,467
STOCKHOLDERS' EQUITY
Non-Voting Series A 7.5% Convertible
Preferred Stock ($.01 par value;
20,000,000 authorized; actual -
no shares issued and outstanding;
as adjusted at minimum level -
34,483 shares outstanding; as
adjusted at maximum level -
40,000 shares outstanding) - 345 400
Common Stock (50,000,000 authorized;
actual - $.01 par value, 215,369
shares outstanding; as adjusted at
minimum and maximum levels - $.0001
par value, 13,530,000 shares
outstanding) 2,154 1,353 1,353
Paid in and contributed capital - 30,893,844 35,693,788
Retained earnings - - -
Shareholder loans (1,154) - -
--------- ----------- -----------
TOTAL STOCKHOLDERS' EQUITY 1,000 30,895,541 35,695,541
--------- ----------- -----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $11,203 $39,188,009 $43,988,009
========= =========== ===========
<PAGE>
ALLIED AMERICAN CAPITAL CORPORATION
LIFE INSURANCE COMPANIES GAAP ADJUSTMENTS
AS OF AUGUST 31, 1998
(UNAUDITED)
<TABLE>
<C> <S> <S> <S> <S> <S> <S> <S>
GOODWILL CLAIM
GAAP ADJUSTMENT DESCRIPTION OTHER AND OTHER AND
INVESTED OTHER INTANGIBLE BENEFIT OTHER MINORITY RETAINED
ASSETS ASSETS ASSETS RESERVES LIABILITIES INTERESTS EARNINGS
-------- ------ ---------- -------- ----------- --------- --------
Estimated excess market value of
Other Invested Assets over
SAP values $758,291 $758,291
Recognition of Statutory non-
admitted assets for GAAP purposes 274,452 274,452
Estimated net prepaid and deferred
income taxes under GAAP 163,369 163,369
Elimination of SAP reinsurance
agreement asset and liability (1,061,978) (1,061,978)
Estimated future value of Life
Insurance Companies' inforce
insurance business 300,000 300,000
Estimated values ascribed to Life
Insurance Companies' licenses 350,000 350,000
Elimination of SAP investment
allowance reserves (508,948) (508,948)
Recognition of minority ownership
interests in Life Insurance
Companies 451,896 (451,896)
-------- ------ ---------- -------- ----------- --------- --------
TOTAL LIFE INSURANCE COMPANIES
GAAP ADJUSTMENTS $758,291 ($624,157) $650,000 ($1,061,978) ($508,948) ($451,896) $1,903,165
======== ====== ========== ======== =========== ========= ========
</TABLE>
<PAGE>
ALLIED AMERICAN CAPITAL CORPORATION
ADJUSTMENTS FOR EFFECTS OF OFFERING
MINIMUM LEVELS OF OFFERING
AS OF AUGUST 31, 1998
(UNAUDITED)
<TABLE>
<C> <S> <S> <S> <S> <S> <S> <S> <S>
GOODWILL
OFFERING ADJUSTMENT AND OTHER PAID IN AND
DESCRIPTION OTHER OTHER NOTE OTHER PREFERRED COMMON CONTRIBUTED
CASH ASSETS ASSETS PAYABLE LIABILITIES STOCK STOCK CAPITAL
---------- -------- --------- ---------- ----------- ----------- --------- -----------
Net proceeds from sale
of Preferred Stock
under offering $29,000,000 $345 $28,999,655
Exchange of Allied shares
for ARCA shares in
merger (801) 801
Cash paid Sellers at
Closing for purchase
of Life Insurance
Companies (17,650,000) (17,650,000)
Cash paid to Life
Insurance Companies
by Sellers at Closing
for certain assets 15,000 15,000
Estimated Life Insurance
Companies' earnings
through Closing 174,239 174,239
Elimination of Allied
(Holding Company)
Offering expenses (10,203) (10,203)
Reclassification of
Allied (Holding Company)
Shareholder loans 1,154 1,154
Recognition of Note
Payable to Sellers at
Closing 1,055,000 (1,055,000)
---------- -------- --------- ---------- ----------- ----------- --------- -----------
TOTAL ADJUSTMENTS FOR
EFFECTS OF OFFERING $11,539,239 $1,154 ($10,203) $1,055,000 ($10,203) $345 ($801) $10,485,849
========== ======== ========= ========== =========== =========== ========= ===========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0001006762
<NAME> ARCA CORP.
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 64,185
<SECURITIES> 7,155
<RECEIVABLES> 51,169
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 243,415
<PP&E> 3,595,958
<DEPRECIATION> 252,617
<TOTAL-ASSETS> 3,679,974
<CURRENT-LIABILITIES> 227,149
<BONDS> 3,516,574
0
0
<COMMON> 239
<OTHER-SE> (73,931)
<TOTAL-LIABILITY-AND-EQUITY> 3,679,974
<SALES> 0
<TOTAL-REVENUES> 598,073
<CGS> 0
<TOTAL-COSTS> 429,520
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 225,131
<INCOME-PRETAX> (56,521)
<INCOME-TAX> 0
<INCOME-CONTINUING> (56,521)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (56,521)
<EPS-PRIMARY> (.03)
<EPS-DILUTED> (.03)
</TABLE>
