U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
(Mark One)
[X] Annual report under section 13 or 15(d) of the Securities Exchange Act
of 1934 for the fiscal year ended 12/31/98.
[ ] 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.
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(Name of small business issuer in its charter)
New Jersey 22-3417547
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(State or other jurisdiction (IRS Employer
of incorporation) Identification number)
215 West Main Street, Maple Shade, New Jersey 08052
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(Address of principal executive offices) (Zip code)
(609) 667-0600
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(Issuer's telephone number)
Securities registered under Section 12(b) of the Act: none
Securities registered under Section 12(g) of the Act: none
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for
such shorter period that the registrant was required to file such reports)
and (2) has been subject to such filing requirements for the past 90 days)
[X]
Check if there is no disclosure of delinquent filers in response to Item 405
of Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-KSB or any amendment to this Form 10-KSB. [X]
State issuer's revenues for its most recent fiscal year: $802,908.
The estimated aggregate market value of the voting stock held by
non-affiliates of the registrant as of December 31, 1998 was $112,498. The
market value is based upon the bid price of the Common Stock of $.25 per
share on December 31, 1998.
The Company had 1,000,000 shares of common stock, par value $.0001 per share,
outstanding as of February 28, 1999.
Documents incorporated by reference: The Company incorporates by reference
various exhibits from the Company's Registration Statement on Form SB-2, file
No. 33-5278-NY, which became effective on November 4, 1996.
Transitional Small Business Disclosure: Yes No XX
---- -----<PAGE>
PART I
Item 1. Description of Business
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General
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ARCA CORP. ("ARCA" or the "Company") was incorporated on December 22, 1995 in
the State of New Jersey for the purpose of acquiring, developing and selling
residential real estate. The Company simultaneously formed Spring Village
Holdings, Inc. a New Jersey corporation, as a wholly owned subsidiary. The
discussion of the business of the Company set forth herein includes the
business of Spring Village Holdings, Inc.
The Company is currently 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 an 80%
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.
On November 24, 1998, Beran became a licensed lender in the State of New
Jersey. Beran intends to enter into secured consumer lending in the first
quarter of 1999.
The Company intends to utilize its contacts and business expertise to locate
and acquire additional properties, primarily apartments, preferably those
that are undervalued or which can be acquired at less than fair value due to
the financial difficulties of their owners. There is no assurance that such
properties can be obtained under terms and conditions that are favorable to
the Company. The Company is also pursuing the acquisition of other
businesses.
Initial Acquisition
- --------------------
The Company acquired a 4.5% general partnership interest and a 75.5% limited
partnership interest (80% total) in SVG Properties, L.P. which owns the
Spring Village Apartments complex in Sharon Hill, Pennsylvania from Harry J.
Santoro and companies affiliated with him (Santoro), the Company's President,
for $50,000. SVG Properties, L.P. (the "Partnership") is a limited
partnership organized under the laws of the State of New Jersey on May 12,
1987. In 1987 the Partnership acquired for $2,450,000 the Mill Spring
Apartments (subsequently renamed the Spring Village Apartments). At the time
of the acquisition the property was severely in need of rehabilitation. The
Partnership invested over $1,000,000 into the property using capital
contributed by its partners and the net proceeds from a $3,250,000 mortgage
guaranteed by the Federal Housing Administration. Though the physical aspects
and the net income of the property were significantly improved, the net<PAGE>
income from operations was not sufficient to make the principal and interest
payments due on the first mortgage. The Partnership attributes this to the
high effective interest rate on the mortgage of 10 1/2%, plus 1/2% for
insurance. In January, 1992, the Partnership defaulted on its mortgage. In
August, 1992, Santoro acquired a controlling interest in the Partnership,
along with other assets, in exchange for $125,000. At the time of the
acquisition in 1992, Mr. Santoro owned a 7.14% limited partnership interest
in SVG Properties, L.P. Mr. Santoro also was the chief executive officer and
a 16.7% owner of Santoro, VanDervort & Gordon, Inc., the corporate general
partner, which owned 14.70% of S.V.G. Properties, L.P. Santoro then entered
into negotiations with the U.S. Department of Housing and Urban Development
(HUD) to renegotiate the terms of the first mortgage. A Provisional Workout
Agreement (the "Agreement") was agreed to and became effective on January 1,
1994, whereby HUD agreed not to take any action as a result of the default,
provided that the mortgagor remit the minimum monthly payment and
satisfactorily performed the other requirements of the agreement. The
agreement provided for a minimum monthly payment of $24,000 ($288,000/yr.) in
1994 increasing to $34,000 per month ($408,000/yr.) in 2002.
During March of 1994, HUD announced that it planned to sell the large backlog
of mortgage loans that reverted to the Federal Housing Administration (FHA)
when borrowers defaulted on FHA insured mortgages.
On September 18, 1996, the Company was notified that the mortgage on the
Property was sold to Resource Properties XXIII, Inc. ("RPI"). Shortly
thereafter, the Company commenced negotiations with RPI whereby RPI agreed to
recast the existing debt to RPI, currently $3,490,419, under the following
terms:
(a) RPI agreed lend to the Company, pursuant to the terms of a
Promissory Note (the "Note"), up to $110,000 for the removal of the
underground oil tanks in order to permit the Company to refinance the
Property.
(b) The Company agreed to deliver to RPI such data, reports, statements,
financials, and the like, as RPI may request, including monthly financial
statements certified to be correct by Harry J. Santoro, and annual financial
statements certified by independent public accountants.
(c) If, prior to the earlier of: (i) one year from the date that a
closure report acceptable to most lenders is received by SVG from the
engineering firm retained to remove the oil tanks and perform the remedial
work, if any, or (ii) June 30, 1998, SVG was successful in finding a lender
to make a first mortgage loan secured by the Property in an amount
sufficient to provide Resource with net proceeds (after all fees, costs and
expenses of the transaction) of at least Two Million Three Hundred Thousand
Dollars ($2,300,000), then Resource would:
(i) subordinate both the mortgage securing the Mortgage Note and
any mortgage securing the Note to the mortgage of the new lender;
(ii) agree to modify the payment terms of the Mortgage Note and
the Note as follows:
(a) interest would accrue at a rate of 150 basis points above
the interest rate on the new first mortgage on a deemed total principal
amount equal to Three Million Three Hundred Fifty Thousand Dollars
($3,350,000), less the original principal amount of the new first mortgage.
<PAGE>
(b) payments of interest and principal (based on the deemed
principal amount described in Paragraph 8(ii)(a)) would be payable monthly
based on a twenty-five year amortization. However, to the extent the
Net Cash Flow from the Property is insufficient to make the scheduled
payments of interest and principal in full, SVG shall pay over to Resource,
until such time as the scheduled payments are current, one hundred percent
(100%) of the Net Cash Flow from the Property as defined in the agreement.
(iii) agree to special provisions in the obligations of SVG
retained by Resource as may be required by the new first mortgage lender.
(iv) after it has received all of the interest and principal
required under Paragraph 8(ii), assign its interest in the Mortgage Note and
the Note to Harry J. Santoro for no additional consideration.
As part of the proposed refinancing it was agreed that Harry J.
Santoro ("Santoro") and/or H. James Santoro, Inc. ("HJS") would do the
following:
(a) certify certain financial reports as true and correct;
(b) defer compensation for any service rendered to SVG until such time
as the proposed refinancing was completed; and thereafter, should the cash
flow from the property be insufficient to make all payments due on the
proposed new mortgage and the new promissory note due to Resource,
(c) to personally guarantee certain carve-out obligations of SVG
pursuant to the proposed new first mortgage and the new promissory note to
Resource; specifically mentioned during the course of the negotiations with
Resource were: (i) certain environmental indemnifications, and a guarantee
to refund any shortage in the tenant security deposit accounts; and SVG
agreed to:
1. Indemnify Santoro for any losses incurred as a result of the
proposed guarantees;
2. Extend the existing management agreement between SVG and HJS until
such time as Santoro has no further obligations pursuant to the Agreement;
3. At closing of the refinancing, issue to Santoro a promissory note
for the difference between the amount due to Resource pursuant to the terms
of the existing mortgage note and $3,350,000, with the same terms and
conditions as the proposed new note to Resource as outlined in the Agreement.
On September 19, 1997, S.V.G. Properties, L.P., 80% of which is owned by ARCA
Corp. through its wholly owned subsidiary Spring Village Holdings, Inc.,
completed the refinancing of its long term debt. The refinancing completes
the first objective of the Company's long term business plan. Below is a
summary of the significant financial terms of the refinancing (rounded to the
nearest $1,000):
<PAGE>
Before After
Refinancing Refinancing
----------- -----------
Total long term debt 3,595,000 3,578,000
Annual debt service (1998) 342,000 326,000
Annual interest expense (1998) 331,000 296,000
Funded expense escrows 10,000 99,000
Effective interest rate 9.2% 8.3%
Maturity 7 years 10 years+/-
As a result of the refinancing, long term debt decreased by $17,000, annual
debt service decreased by $19,000, annual interest expense decreased by
$35,000, and funded cash reserves to cover anticipated future expenses such
as taxes, capital replacements and insurance increased by $89,000. Below is
a more detailed analysis of long term debt as of September 19, 1997.
Principal Annual Annual
Debt Service Interest
Principal
plus interest
-----------------------------------------
New first Mortgage (Merrill)
(7.78%) (10 years) 2,500,000 215,544 194,500
New second mortgage (RPI)
(9.28%) (25 years) 927,672 95,568 86,088
New subordinate debt (Santoro)
(10.0%)(2 years) 150,000 15,000 15,000
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3,577,672 326,112 295,588
Debt forgiveness/gain on extinguishment 162,926
For more information, see Financial Statements
Now that the refinancing has been completed, the Company plans to seek new
capital to reduce total debt and to seek strategic acquisitions to enhance
shareholder value.
The Complex
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The Spring Village Apartment complex is a garden-type apartment complex
consisting of seven buildings containing 60 one-bedroom units, 49 two-bedroom
units and 15 studio units, located in Sharon Hill, Delaware County,
Pennsylvania. Construction features include brick veneer over concrete block
exterior walls, wood frame, asphalt shingle gable roofs, aluminum frame
windows and sliding patio doors. Each unit is heated by gas fired hot water
baseboard heat. All units have wall mounted air conditioners. The buildings
were built in 1966. The quality of construction and current physical
condition of the units is believed by the Company to be average. The Company
is not aware of any material adverse environmental attributes of the
property. There were seven inactive underground storage tanks formerly used
to store heating oil for the complex. The tanks were not regulated by the
State of Pennsylvania, and were removed during 1997 by a qualified
environmental engineering firm.
<PAGE>
The current real estate tax assessment equates to a market value of
$3,190,000. The assessed value for real estate taxes is $98,890 (based on a
presumed value of $3,190,000) and the real estate taxes paid for 1998 were
$91,200. The tax basis as of December 31, 1997 of the Partnership's buildings
and equipment was $3,464,024 and $124,086 respectively, with $1,163,716 in
accumulated depreciation. The land has a tax basis of $263,727. Buildings
and improvements are depreciated using the straight line method over a 40
year life. Equipment is depreciated using the 150% declining balance method
over a 10 year life. The Company owns an 80% partnership interest in the
Partnership which owns the property. The Property has been substantially
renovated and the Company does not anticipate the need for substantial future
renovations other than routine replacements. The Company believes it has
adequate insurance coverage.
The Company plans to make the following capital expenditures during the next
twelve months:
Replace appliances and equipment $ 15,000
Replace soffits and fascia, painting 4,000
Grounds, landscaping, etc. 5,000
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Total $ 24,000
All of the above capital expenditures are funded on an ongoing basis by
scheduled additions to and withdrawals from escrow accounts held by the first
mortgage holder.
Future Acquisitions
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The Company intends to acquire additional single family and multi-family
residential properties in the future, as well as undeveloped acreage. The
target price per apartment unit is $28,000 and the geographic area shall be
Eastern Pennsylvania, Delaware, and Southern New Jersey. There is no
assurance that properties meeting such criteria can be acquired by the
Company or that such acquisitions will be profitable. Also, investments may
be made in properties which do not meet the above criteria upon what the
Company believes to be favorable investment opportunities, such as purchasing
properties that are distressed, at sheriff sales and/or tax sales, and the
like.
The Company intends to finance its future acquisitions through the use of its
own equity and initial acquisition debt up to 100% of the cost of the
property, including anticipated improvements. It is the Company's stated
long term goal to reduce overall debt to no greater than 50% of the market
value of the Company's real estate holdings.
The Company's policy is to acquire assets for income, with capital
appreciation being anticipated, but secondary to current income.
The Company has no limit as to the percentage of its assets which may be
invested in any particular property, except that the Company will not invest
in a transaction or a series of transactions which will require registration
as an Investment Company under the Investment Company Act of 1940.
The Company may invest in mortgages or other debt securities, including real
estate tax liens, and there are no restrictions on such investments except
that such debt securities or liens shall be secured by residential real
estate or unimproved acreage.<PAGE>
The Company may invest in direct or indirect interests in residential real
estate and unimproved land, including fee simple ownership, general or
limited partnership interests, listed or not listed common or preferred stock
in real estate companies or REITS which invest in residential real estate.
The Company does not intend to originate or warehouse mortgages, for purposes
of sale or servicing.
The Company, at the discretion of the Board of Directors, may change the
investment objectives and criteria as it deems appropriate and in the best
interests of the Company.
<PAGE>
Industry Overview
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The Company's primary focus is to own and operate apartment complexes. The
industry is dominated by numerous small operators. There are several large
apartment operators in the area, including the Korman Organization, which
operates a 1,500+ unit apartment complex, International City, which competes
with the Company's existing complex. The Company believes the industry is
highly competitive.
Apartment complexes in the area similar to the one owned by the Company have
the following profiles:
Company Company
Rents per month Typical 12/31/97 12/31/98
------------------------- ------- -------- --------
Studio $375 - $495 $395 $405
One bedroom $475 - $625 $510 $520
Two bedroom $585 - $725 $625 $635
Annual rent increase 1998 1% - 3% 1% - 2% 1% - 2%
Average occupancy 1998 94% - 97% 92% - 95% 93% - 98%
The Company believes that the general market is stable and that its units at
current rental rates are in line with competitive complexes in the area.
Because it costs more to build a new apartment unit than to acquire an
existing unit and due to lack of suitable construction sites in the area,
competition is limited to existing apartment complexes and should be
manageable.
Employees
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In addition to Harry J. Santoro, the President, and Stephen M. Robinson, the
Vice President and Secretary, the Company, through subcontracts, employs five
other people on a regular basis who manage and maintain the apartment
complex.
Facilities
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The Company currently shares its principal executive offices with Santoro
Realty, Inc. in approximately 500 square feet of leased office space at 215
West Main Street, Maple Shade, New Jersey, 08052. Monthly rent under a month
to month lease is $600, of which one half will be paid by the Company. The
building is owned by Harry J. Santoro, President of the Company; however,
the Company believes the terms of the lease are at least as favorable as
terms available from non-affiliated third parties.
Item 2. Description of Property
- ---------------------------------
See Item 1 "Description of Business" and Item 6 "Management Discussion and
Analysis or Plan of Operation".<PAGE>
Item 3. Legal Proceedings.
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There are no pending material legal proceedings to which the Company or any
of its properties is subject.
Item 4. Submission of Matters to a Vote of Security Holders.
- --------------------------------------------------------------
None.
PART II.
Item 5. Market for Common Equity and Related Stockholder Matters.
- -------------------------------------------------------------------
The Company's common stock is approved for quotation on the OTC Bulletin
Board under the symbol "ARCC". As of the date of this Form 10-KSB,
quotations were submitted by three market makers and there was minimal public
trading of the Company's stock at prices ranging from $.25 to $1.0625.
As of February 28, 1999 there were 1,000,000 shares of common stock
outstanding (net of 1,475,000 shares held in treasury) held by approximately
450 shareholders of record. There have been and are expected to be no
dividends declared on the common stock.
Item 6. Management Discussion and Analysis or Plan of Operation
- ----------------------------------------------------------------
The Company intends to target its marketing and business activity to renting
apartment units to moderate income people who are not in a position to
acquire a home. The Company believes that well maintained, affordable rental
units will be in great demand as a result of slow wage growth in the future.
This should provide a stable rental income base and allow for future revenue
growth through modest rental increases near the rate of inflation.
The Company's long range plan is to reduce debt to around fifty percent of a
property's value. To accomplish this, the Company plans to raise additional
capital through the sale of its securities in the future.
The Company advertises its units in local newspapers, by direct mail and
through promotional programs designed to maintain occupancy at or above 95%.
Results of Operations
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The following discussion and analysis should be read in conjunction with the
Consolidated Financial Statements and Notes thereto appearing elsewhere in
this Form 10-KSB. The Company was incorporated on December 22, 1995. On
December 31, 1995, the Company acquired from its President an 80% partnership
interest in S.V.G. Properties, L.P. (the "Partnership") which owns a 124
unit apartment complex. The 80% partnership interest consists of a 4.5%
general partnership interest plus a 75.5% limited partnership interest. The
financial information contained herein includes the results of operations of
the Partnership.
<PAGE>
1998 Compared To 1997
The Company reported total revenues of $802,908 in 1998, compared to $743,935
in 1997, an increase of $58,973, or 8%. Several factors accounted for this
increase. Occupancy increased from 93% in 1997 to approximately 96% in 1998.
The Company believes this was the result of an improving economy, increased
advertising, and reflects overall improvement in the desirability of our
apartments resulting from increased spending in prior years, on previously
deferred maintenance. Tenant fees and other income increased by $23,015 as a
result of expansion of tenant services and the installation of a new
computerized billing system. Included in total revenues are revenues from
financial services realized by Beran Corp., the Company's new subsidiary
which is in its early stages of development. Interest income also increased
by $1,316, reflecting a new cash management system implemented in 1998.
Total operating expenses decreased by $146,299, to $599,378. Administrative
expenses declined by $33,437 to $146,002. In 1997, the Company incurred
significant expenses related to a proposed acquisition. In 1998, there was
an increase in administrative expenses related to the operations of the
apartment complex. Utilities expenses declined from $88,027 in 1997 to
$79,750 in 1998 due primarily to an unusually mild winter. Operating and
maintenance expenses remained little changed from 1997. Decreases in
material costs were offset by increases in subcontracts and miscellaneous
other costs. Taxes and insurance declined by $10,360, reflecting lower
insurance premiums and lower payroll taxes due to a shift to the use of
subcontractors. In 1997, the Company incurred a $111,974 environmental
remediation expense to remove seven underground fuel tanks to accomplish the
refinancing described below. Depreciation increased by $16,818 to $113,483.
On September 19, 1997, the Company refinanced its debt. Interest expense
declined from $324,402 in 1997 to $300,315, due to a lower overall effective
interest rate and a reduction in the total debt outstanding. $162,926 of
debt was forgiven by the Company's original first mortgage lender as part of
the refinancing. The forgiveness of debt was reflected as a net gain on
extinguishment of debt in 1997, and is reported as an extraordinary item.
Net loss decreased from $162,567 in 1997 to $94,837 in 1998. The Company
reported a basic net loss of ($.04) per share in 1998, compared to a basic
net loss of ($.10) per share in 1997, as a result of a lower loss in 1998
divided by a larger number of average shares outstanding.
1997 Compared To 1996
The Company reported total revenues of $743,395 and $734,690 in 1997 and
1996, respectively. Occupancy was approximately 93% and 93%, respectively. A
small increase in the average unit rental rate resulted in the $8,705
increase in total revenue.
Administrative expenses increased to $179,439 in 1997 from $102,788 in 1996,
primarily due to costs related to the Company's acquisition program.
Utilities declined by $13,772. Operating and maintenance expense increased
from $109,551 in 1996 to $135,057 in 1997. In 1997, the Company added a full
time maintenance person which caused this increase. The Company believes it
will benefit in the future as a result of the increase in maintenance
manpower through faster service and a better maintained property. Taxes and
insurance declined by $12,688, primarily due to the elimination of mortgage
insurance which was due on the mortgage that was refinanced in 1997, and <PAGE>
overall lower insurance rates. Depreciation increased by $6,405 to $96,665
in 1997, reflecting recent capital improvements being depreciated. Operating
income declined from $184,262 in 1996 to ($1,742) in 1997, primarily due to
the increases in expenses discussed above and the $111,974 environmental
remediation expense incurred in 1997 as discussed below.
On September 19, 1997, the Company refinanced its debt. As a result,
interest expense declined from $332,136 in 1996 to $324,402 in 1997. Related
to the refinancing, the Company incurred $111,974 in environmental
remediation expenses. Seven underground fuel storage tanks were successfully
removed. $162,926, of debt was forgiven by the Company's original first
mortgage lender as part of the refinancing. This forgiveness of debt was
reflected as a net gain on extinguishment of debt in 1997.
Net loss increased from ($139,412) to ($162,567) in 1997. Basic net loss per
share declined from ($.33) in 1996 to ($.10) in 1997, primarily due to the
increase in the average number of shares outstanding.
The prior five year rental history is summarized as follows:
Gross Potential Rents Occupancy Average Annual Rent
Year (Exclusive of other income) Percentage per square foot
- ----- --------------------- ---------- --------------------
1994 $753,379 96 $9.61
1995 $763,181 95 $9.74
1996 $775,730 93 $9.90
1997 $783,367 93 $10.00
1998 $797,894 96 $10.18
No tenant occupies more than 10% of the leased space. Substantially all
leases are for one year or less, and are for residential dwelling units. A
sixty day notice is required for termination. Substantially all of the
leases expire within one year as is typical for apartment leases.
The Company 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 December 31, 1997 and 1996, the Company had a deficit in working capital
of $50,418 and $10,868, respectively, including cash held in escrow for
anticipated future expenses. At December 31, 1998, the Company had $3,203 in
working capital, a significant improvement over prior years, and indicative
of the Company's improving financial fundamentals.
On December 31, 1996, the Company had $32,846 in cash. During the year
ending December 31, 1997, the Company received proceeds of $25,000 from the
issuance of common stock and $27,000 from notes payable to stockholders and
related parties. Operations provided an additional $22,875 in cash. The
Company used $41,066 to purchase property and equipment and reduced mortgage
indebtedness by $5,105. The net increase in cash for the year was $28,704.
The Company had $61,550 in cash on December 31, 1997, exclusive of $77,669
cash held in escrow accounts.
<PAGE>
During the year ending December 31, 1998, the Company realized $40,000 in
proceeds from notes payable, $25,000 from the issuance of its own common
stock, and $10,000 through the sale of common stock of a subsidiary (minority
interest). The Company used $32,139 to repay mortgage notes payable, $9,465
was used in operations. The Company received $10,553 in cash from an
acquisition, collected $95,000 from notes receivable, collected $19,981 from
loans, made $93,334 in new loans, and used $45,981 to purchase property and
equipment. The net increase in cash for the year was $19,592. The Company
had $81,142 in cash on December 31, 1998, exclusive of $52,799 cash held in
escrow accounts.
The Company's balance sheet is highly leveraged. As discussed previously in
this Form 10-KSB, the Company plans to reduce this leverage through the
current and future equity offerings as well as by funds generated from
operations. The Company believes it can support operations and planned
capital expenditures for at least twelve months. Thereafter, the Company's
continued success will be dependant upon its ability to maintain occupancy at
93% or above and to keep costs under control.
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. 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. As a result of the refinancing which occurred on September 19,
1997, the Company anticipates breakeven net cash flow after all scheduled
debt service in 1999, including principal payments totalling $34,893 on long
term debt.
Planned Capital Expenditures
- -----------------------------
Replace appliances and equipment $ 15,000
Replace soffits and fascia, painting 4,000
Grounds, landscaping, etc. 5,000
--------
Total $ 24,000
All of the above capital expenditures are funded on an ongoing basis by
scheduled additions to and withdrawals from escrow accounts held by the first
mortgage holder.
Selected Financial Data
- ------------------------
The following selected financial data has been derived from the Company's
financial statements included elsewhere in this Form 10-KSB, and should be
read in conjunction with the financial statements and notes thereto.
<PAGE>
Statement of Operations Data
12/31/98 12/31/97
-------- --------
Total Revenues 802,908 743,935
Operating Expenses 897,726 1,069,428
Loss before extraordinary item
and minority interest (94,818) (325,493)
Extraordinary item 0 162,926
Loss before minority interest (94,818) (162,567)
Minority Interest (19) 0
Net income (loss) (94,837) (162,567)
Basic net (loss) per share ($.04) ( .10)
Average number of
shares outstanding - basic 2,110,136 1,662,500
Balance Sheet Data December 31, 1998 December 31, 1997
- ------------------- ----------------- -----------------
Working capital (deficit) $ (28,043) ($50,418)
Total Assets $3,681,648 $3,664,601
Total Liabilities $3,783,660 $3,822,480
Minority Interest 10,019 0
Stockholders' Equity
(Deficit) $ (112,031) $ (157,879)
Other
- ------
During 1997, the Company issued 1,485,000 shares, for a total consideration
of $89,100, to two consultants that provided services in connection with the
Company's acquisition program. All 1,485,000 shares were issued subject to
repurchase by the Company for nominal consideration if certain conditions
precedent were not fulfilled. Additionally, voting rights to 1,250,000 of
such shares were granted to Harry J. Santoro, President of the Company, until
such time as the conditions precedent were fulfilled. In June of 1998,
235,000 of the 1,485,000 shares were cancelled. In December 1998, 1,240,000
of the remaining 1,250,000 shares were cancelled, and 10,000 shares were
released to one of the consultants, in consideration for the $15,000
previously received by the Company from the consultant.
Impact of the Year 2000 Issue
- -----------------------------
The Company's State of Readiness
- --------------------------------
The Company has reviewed its critical information systems for Year 2000
compliance. The compliance review revealed that the Company's critical
accounting information systems are Year 2000 compliant due to the fact that
the Company's hardware and operating system are "off-the-shelf" products from
third parties with Year 2000 compliant versions. The Company does not rely
on to any significant degree on any other computerized information systems.
<PAGE>
As part of the Company's Year 2000 compliance review, the Company is in the
process of contacting its primary vendors to determine the extent to which
the Company is vulnerable to those third parties' failure to remediate their
Year 2000 compliance issues.
The Cost to Address the Company's Year 2000 Issues
- --------------------------------------------------
The Company estimates that the cost of its Year 2000 compliance issues will
be less than $1,000 and is not expected to be material to the Company's
financial position, cash flow, or results of operations.
The Risks Associated with the Company's Year 2000 Issues
- --------------------------------------------------------
The Company believes that the risks associated with Year 2000 issues
primarily relate to the failure of third parties, particularly banks and
utilities, upon whom the Company's business relies to timely remediate their
Year 2000 issues. Failure by third parties to timely remediate their Year
2000 issues could result in disruptions in the Company's supply of parts and
materials, late, missed, or unapplied payments, temporary disruptions, and
other general problems related to the Company's daily operations. While the
Company believes its Year 2000 compliance review procedures will adequately
address the Company's internal Year 2000 issues, until the Company receives
responses from its significant vendors, the overall risks associated with the
Year 2000 issue will remain difficult to accurately describe and quantify,
and there can be no guarantee that the Year 2000 issue will not have a
material adverse effect on the Company's business, operating results and
financial position.
The Company's Contingency Plan
- ------------------------------
The Company has implemented a Year 2000 contingency plan. The Company is
prepared to run manually and without automated systems in the event of a Year
2000 system failure. The Company is however dependent on certain suppliers,
particularly two banks where the Company maintains its operating accounts,
and suppliers of utilities. Except for utilities, the Company has arranged
for the use of multiple suppliers, including banks, to provide alternatives
should one or more suppliers experience difficulties.
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 <PAGE>
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.
Item 7. Financial Statements.
- -------------------------------
The consolidated financial statements included in this Form 10-KSB for the
years ended December 31, 1998 and 1997 have been audited by Haefele, Flanagan
& Co., P.C., independent certified public accountants, as indicated in their
report with respect thereto, and are included in reliance upon such report
given upon the authority of said firm as experts in auditing and accounting.
Please see pages F-1 through F-18 attached as an exhibit hereto.
Item 8. Changes In and Disagreements With Accountants on
Accounting and Financial Disclosure
- -----------------------------------------------------------
None.
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act
- -----------------------------------------------------------------------
The following table sets forth information with respect to the executive
officers, key personnel, directors and nominees to become directors of the
Company:
Age Title
---- ------
Harry J. Santoro, CPA 45 President, Treasurer and
Director
Stephen M. Robinson, Esq. 56 Vice President, Secretary
and Director
Harry J. Santoro. Mr. Santoro is 45 years old and holds a Bachelor of
Science Degree in Accounting from Drexel University, Philadelphia, PA, where
he graduated Summa Cum Laude. He began work in 1975 with Haefele, Van Sciver
& Co., a local certified Public Accounting firm. Three years later he became
a Certified Public Accountant and was made a partner in the firm. The firm's
name was changed to Haefele, Van Sciver, Santoro & Co. While at the firm he <PAGE>
provided tax and financial planning services to individuals and businesses in
a wide range of industries, including real estate development. He left the
firm in 1982 to form a consulting company and to invest in real estate. He
is currently engaged in real estate development and apartment management as
principal and President of H. James Santoro, Inc. as well as the Company.
He also offers consulting services related to mergers and acquisitions.
Stephen M. Robinson. Mr. Robinson, who is 56 years old, is admitted to
practice law in the State of New Jersey, and maintains a full time legal
practice concentrating on corporations, securities and associated general
practice matters. He received a B.A. from Rutgers University in 1964 and a
J.D. from Rutgers Law School in 1967. From 1970 to 1973, Mr. Robinson was an
assistant county prosecutor for Camden County, New Jersey, and from 1973 to
1978, he was an attorney with the United States Securities and Exchange
Commission. He returned to private practice in 1978, and has been
continuously involved in the legal aspects of public and private offerings of
securities, other '33 Act filings,'34 Act filings for public companies and
securities-oriented litigation. During the period from 1986 through 1992,
Mr. Robinson was a shareholder of the law firm of Robinson & Sacharow, P.C.,
located in Maple Shade, New Jersey. Mr. Robinson left such firm in 1992,
and opened an office at 172 Tuckerton Road, Medford, New Jersey where he
continues his securities practice.
All directors hold office until the next annual meeting of stockholders or
the election and qualification of their successors. Directors of the Company
do not receive any compensation for their services as members of the Board of
Directors, but are entitled to reimbursement for expenses incurred in
connection with their attendance at Board of Directors' meetings. Officers
are appointed by the Board of Directors and serve at the discretion of the
Board.
Item 10. Executive Compensation.
Summary Compensation Table
Annual Compensation
Name and Other Annual
Principal Position Year Salary Bonus Compensation
- ------------------- ---- ------ ------ ------------
Harry J. Santoro, 1997 $17,500 plus 0 $37,197 <F1>
President, Treasurer 15,000 shares
of common stock
valued at $7500
1998 0 0 $39,874 <F1>
Stephen M. Robinson, 1997 $25,000 plus 0 $15,488 <F2>
VP, Secretary 50,000 shares
of common stock
valued at
$25,000
1998 0 0 $10,660
<PAGE>
- -----------------
[FN]
<F1> *SVG Properties, L.P. entered into a management agreement with H. James
Santoro, Inc., effective August 1, 1992, whereby H. James Santoro, Inc.
agreed to manage the Spring Village Apartment complex for a fee equal to 5%
of the gross rent of the complex. Such agreement is currently in effect on
a month to month basis, and shall terminate when Mr. Santoro and H. James
Santoro, Inc. have no remaining obligation or liability related to the
agreement with RPI. H. James Santoro, Inc. received in 1998 and 1997,
respectively, $39,874 and $37,197 pursuant to such agreement. Mr. Santoro
owns 100% of H. James Santoro, Inc.
<F2> Includes fees payable to Stephen M. Robinson, P.A. as corporate counsel.
</FN>
Employment and Consulting Agreements
- -------------------------------------
The employment agreements of the officers terminated on December 22, 1996,
and have not been renewed.
Item 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as of February 28, 1999
with respect to the beneficial ownership of the common stock by each
beneficial owner of more than 5% of the outstanding shares thereof, by each
director, each nominee to become a director and each executive officer named
in the Summary Compensation Table and by all executive officers, directors
and nominees to become directors of the Company as a group.
# Shares of
Name and Address of Common Stock % Outstanding
Beneficial Owner Beneficially Common Stock
Owned <F1> Beneficially Owned
- ------------------ --------------- -----------------------
Stephen M. Robinson
172 Tuckerton Road
Medford, NJ 08055 339,370<F2> 33.9%
Harry J. Santoro
215 West Main Street
Maple Shade, NJ 08052 213,140<F3> 21.3%
All Directors and
Officers as a
group (2 persons) 552,510 55.3%
<PAGE>
- -----------------
[FN]
<F1>
Under the rules of the Commission, a person is deemed to be the beneficial
owner of a security if such person has or shares the power to vote or direct
the voting of such security or the power to dispose or direct the disposition
of such security. A person is also deemed to be a beneficial owner of any
securities of that person has the right to acquire beneficial ownership
within 60 days. Accordingly, more than one person may be deemed to be a
beneficial owner of the same securities. Unless otherwise indicated by
footnote, the named entities or individuals have sole voting and investment
power with respect to the shares of common stock beneficially owned.
<F2>
Includes 45,000 shares held by Theodora T. Robinson, wife of Stephen M.
Robinson.
<F3>
Includes 45,000 shares held by Donna M. Santoro, wife of Harry J. Santoro,
and 37,500 shares held by H. James Santoro, Inc., a company controlled by
Harry J. Santoro.
</FN>
Item 12. Certain Relationships and Related Party Transactions
- --------------------------------------------------------------
SVG Properties, L.P. entered into a management agreement with H. James
Santoro, Inc., effective August 1, 1992, whereby H. James Santoro, Inc.
agreed to manage the Spring Village Apartment complex for a fee equal to 5%
of the gross rent of the complex. Such agreement is currently in effect on a
month to month basis, and shall terminate when Mr. Santoro and H. James
Santoro, Inc. have no remaining obligation or liability related to the
agreement with RPI. H. James Santoro, Inc. received in 1998 and 1997,
respectively, $39,874 and $37,197, pursuant to such agreement. Mr. Santoro
owns 100% of H. James Santoro, Inc.
The Company currently shares its principal executive offices with Santoro
Realty, Inc. in approximately 500 square feet of leased office space at 215
West Main Street, Maple Shade, New Jersey, 08052. Monthly rent under a month
to month lease is $600, of which one half will be paid by the Company. The
building is owned by Harry J. Santoro, President of the Company; however,
the Company believes the terms of the lease are at least as favorable as
terms available from non-affiliated third parties.
During the year ended December 31, 1997, the Company incurred $65,488 of
legal fees payable to a stockholder/director, of which $15,488 was incurred
in connection with the refinancing and is included in deferred financing
costs. The Company also incurred $25,000 of consulting fees payable to a
stockholder/director during the year ended December 31, 1997. As of
December 31, 1997, $27,500 of these fees are in accrued expenses. A portion
of these fees were paid by the issuance of the Company's common stock. See
next paragraph.
Sixty five thousand (65,000) shares of common stock were issued to officers
of the Company for services provided during the year ended December 31,
1997. The shares were valued at $32,500, and is included in administrative
expenses.
<PAGE>
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
Notes to Consolidated Financial Statements 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.
The shares were valued at $10,657, which was included in deferred financing
costs. Stephen M. Robinson, the sole shareholder of Stephen M. Robinson,
P.A., is Vice President, Secretary, and a director of the Company.
During the year ended December 31, 1998, Stephen M. Robinson, Secretary, Vice
President and a director of the Company, advanced $27,000 to the Company
pursuant to a demand promissory note which bears interest at 12% per annum.
During the year ended December 31, 1998, a company owned by Harry J. Santoro,
President, Treasurer and a director of the Company, advanced $47,500 to the
Company pursuant to a demand promissory note which bears interest at 12% per
annum.
Item 13. Exhibits and Reports on Form 8-K
- ------------------------------------------
(a) Exhibits
--------
3.1* Articles of Incorporation of Registrant filed (A)
on December 22, 1995
3.2* By-Laws of the Registrant (A)
10.4* Promissory Note between the Registrant and Eastern (A)
States Energy, Inc. dated May 31, 1996
10.5* Subscription Agreement between the Registrant and (A)
Eastern States Energy, Inc. dated May 31, 1996
10.7* Mortgage Note between SVG Properties, L.P. and (A)
Brennan-Indio, Inc. covering the Spring Village
Apartments in the amount of $3,200,000
10.8* Mortgage between SVG Properties, L.P. and (A)
Brennan-Indio, Inc. covering the Spring Village
Apartments in the amount of $3,200,000
10.9* Loan Agreement between Resource Properties XXIII, Inc. (B)
and SVG Properties, L.P. in the amount of $110,000.
<PAGE>
10.10* Multifamily Mortgage, Assignment of Rents and Security (C)
Agreement between SVG Properties, L.P. and
Merrill Lynch Credit Corporation, covering the Spring
Village Apartments in the amount of $2,500,000.
10.11* Promissory Note between SVG Properties, L.P. (C)
and Merrill Lynch Credit Corporation, covering
the Spring Village Apartments in the amount of $2,500,000.
10.12* Mortgage and Security Agreement between (C)
SVG Properties, L.P. and Resource Properties XXIII, Inc.
covering the Spring Village Apartments
in the amount of $927,672.78.
10.13* Amendment to Note between SVG Properties, L.P. and (C)
Resource Properties XXIII, Inc. covering the Spring
Village Apartments in the amount of $927,672,78.
10.14* Promissory Note between SVG Properties, L.P. and (C)
Harry J. Santoro in the amount of $150,000
11.1 Statement re computation of per-share earnings
21.2 Amended list of subsidiaries of the Registrant as of 12/31/98
27.1 Financial Data Schedule
(b) Reports on Form 8-K
-------------------
The following report on Form 8-K was filed during the last quarter of the
period covered by this report:
Report on Form 8-K filed October 6, 1998 filing press release concerning the
proposed acquisition of Allied American Capital Corporation
- ---------
The exhibits designed above with an asterisk (*) have previously been filed
with the Commission and, pursuant to 17 C.F.R. Secs. 201.24 and 240.12b-32,
are incorporated by reference to the documents as indicated below:
(A) Incorporated by reference to the Registrant's Registration Statement on
Form SB-2 number 333-5278-NY, effective November 4, 1996.
(B) Incorporated by reference to the Registrant's Form 10-KSB dated December
31, 1997.
(C) Incorporated by reference to the Registrant's Form 8-K dated September
18, 1997, filed September 24, 1997.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
ARCA CORP.
(Registrant)
Date: March 4, 1999
/S/ Harry J. Santoro
-----------------------------------
Harry J. Santoro, President,
Chief Executive Officer
Pursuant to the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
ARCA CORP.
(Registrant)
Date: March 4, 1999
/S/ Harry J. Santoro
-------------------------------------
Harry J. Santoro, Director
/S/ Stephen M. Robinson
-------------------------------------
Stephen M. Robinson, Director
<PAGE>
EARNINGS PER SHARE SCHEDULE
Exhibit 11.1
Calculation of Net Income 12/31/98
Net Income (loss) (94,837)
Assumed interest expense reduction 0
Assumed interest income increase 0
---------
(94,837)
==========
Calculation of weighted average number of shares
Weighted average shares outstanding 2,110,136
Common stock equivalents 0
----------
2,110,136
==========
Net income (loss) per share (.04)
==========
<PAGE>
EXHIBIT 21.2
AMENDED LIST OF SUBSIDIARIES OF REGISTRANT
as of DECEMBER 31, 1998
Spring Village Holdings, Inc.
215 West Main Street
Maple Shade, New Jersey 08052
Beran Corp., a Delaware corporation
215 West Main Street
Maple Shade, New Jersey 08052
<PAGE>
ARCA CORP. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
<PAGE>
TABLE OF CONTENTS
Page
Independent Auditors' Report F-1
Consolidated Financial Statements
Consolidated Balance Sheets F-2
Consolidated Statements of Operations F-3
Consolidated Statements of Changes in
Stockholders' Deficit F-4
Consolidated Statements of Cash Flows F-5 - F-7
Notes to Consolidated Financial Statements F-8 - F-18
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
of ARCA Corp. and Subsidiaries
We have audited the accompanying consolidated balance sheets of ARCA
CORP. AND SUBSIDIARIES as of December 31, 1998 and 1997, and the related
consolidated statements of operations, changes in stockholders' deficit, and
cash flows for the years then ended. These consolidated financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of ARCA
CORP. AND SUBSIDIARIES as of December 31, 1998 and 1997, and the results of
their operations and their cash flows for the years then ended in conformity
with generally accepted accounting principles.
HAEFELE, FLANAGAN & CO., p.c.
Moorestown, New Jersey
January 29, 1999
F-1
<PAGE>
ARCA CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
ASSETS
1998 1997
Rental property, net (Notes 3 & 4) $3,323,353 $3,376,436
Cash (Note 3) 81,142 61,550
Cash held in escrow (Notes 3 & 5) 52,799 77,669
Accounts receivable 10,529 8,740
Notes receivable (Notes 3 & 6) 73,353 -0-
Prepaid expenses 53,428 51,535
Deferred financing costs, net (Note 3) 87,044 84,171
Organization costs, net (Note 3) -0- 4,500
---------- ----------
Total Assets $3,681,648 $3,664,601
========== ==========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Liabilities
Mortgage notes payable (Note 7) $3,390,429 $3,422,568
Accrued interest 45,736 27,197
Notes payable (Note 8) 237,000 197,000
Accounts payable 24,863 19,228
Accrued expenses 25,654 97,302
Security deposits payable (Note 3) 56,407 55,484
Other liabilities 3,571 3,701
---------- ----------
Total Liabilities 3,783,660 3,822,480
Minority interest (Notes 1 and 3) 10,019 -0-
Commitments and contingencies (Note 12)
Stockholders' Deficit (Note 9)
Common stock, $.0001 par value,
50,000,000 shares authorized,
2,390,000 shares and 2,060,000 shares
in 1998 and 1997 issued 239 206
Additional paid in capital 484,569 343,894
Accumulated deficit ( 396,816) ( 301,979)
---------- ----------
87,992 42,121
Less stock subscriptions receivable ( 140,000) ( 200,000)
Less 1,475,000 shares of treasury
stock, at cost (60,023) -0-
---------- ----------
Total Stockholders' Deficit ( 112,031) ( 157,879)
---------- ----------
Total Liabilities and Stockholders'
Deficit $3,681,648 $3,664,601
========== ==========
The accompanying notes are an integral part of these consolidated financial
statements.
F-2<PAGE>
ARCA CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
1998 1997
Revenues
Rental real estate $ 796,855 $ 743,935
Financial services 6,053 -0-
---------- ----------
Total revenues 802,908 743,935
Operating Expenses
Administrative expenses 146,002 179,439
Utilities expense 79,750 88,027
Operating and maintenance 135,988 135,057
Taxes and insurance 124,155 134,515
Environmental Remediation expense -0- 111,974
Depreciation and amortization 113,483 96,665
---------- ----------
Total operating expenses 599,378 745,677
---------- ----------
Operating income (loss) 203,530 ( 1,742)
Other income (expense)
Interest income 1,967 651
Interest expense ( 300,315) (324,402)
---------- ----------
Total other income (expense) ( 298,348) ( 323,751)
---------- ----------
Loss before extraordinary item and
minority interest ( 94,818) ( 325,493)
Extraordinary item
Net gain on extinguishment of debt -0- 162,926
---------- ----------
Loss before minority interest ( 94,818) ( 162,567)
Minority interest (19) -0-
---------- ----------
Net loss ($ 94,837) ($ 162,567)
========== ==========
Net loss per common share - Basic
Loss before extraordinary item
and minority interest ($ .04) ($ .20)
Extraordinary item -0- .10
Minority interest -0- -0-
---------- ----------
Net loss per common share - Basic ($ .04) ($ .10)
========== ==========
Average number of common shares
outstanding - Basic 2,110,136 1,662,500
========== ==========
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
ARCA CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
<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
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
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
25,000 3 24,997 0 0 0 0 25,000
Issuance of
shares of
common stock
300,000 30 127,886 0 0 0 0 127,916
Acquisition of
shares of
common stock
for reissuance
(25,000) (3) (24,997) 0 0 0 0 (25,000)
Issuance of
shares of
common stock 30,000 3 12,789 0 0 0 0 12,792
Acquisition of
shares of
common stock 0 0 0 0 0 235,000 (23) (23)
Acquisition of
shares of
common stock 0 0 0 60,000 0 1,240,000 (60,000) -0-
Net loss 0 0 0 0 (94,837) 0 0 (94,837)
--------- ----- -------- -------- ----------- ______ ______ ________
Balance
12/31/98 2,390,000 $239 $484,569 ($140,000) ($396,816) 1,475,000 (60,023) $(112,031)
========= ===== ======== ======== =========== ========== ======= ========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-4
<PAGE>
ARCA CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
1998 1997
Cash Flows From Operating Activities:
Net loss ($ 94,837) ($ 162,567)
Adjustments to reconcile net loss to
net cash provided by (used in) operating
activities:
Minority interest in net loss of
consolidated subsidiary 19 -0-
Stock compensation expense -0- 46,600
Environmental remediation expense -0- 101,081
Depreciation and amortization 113,483 96,665
Gain on extinguishment of debt -0- (162,926)
(Increase) decrease in:
Accounts receivable ( 1,789) 6,841
Prepaid expenses ( 930) 26,907
Cash held in escrow 24,870 3,740
Increase (decrease) in:
Accounts payable 5,635 5,122
Accrued interest 18,539 16,722
Accrued expenses ( 75,248) 38,206
Other liabilities ( 130) 3,701
Security deposits payable 923 2,783
--------- --------
Net cash provided by (used in) operating
activities ( 9,465) 22,875
Cash Flows From Investing Activities:
Purchases of property and equipment ( 45,981) ( 41,066)
Cash received from acquisition 10,553 -0-
Collection of installment notes receivable 114,981 -0-
Loans made ( 93,334) -0-
--------- --------
Net cash used in investing
activities ( 13,781) ( 41,066)
Cash Flows from Financing Activities:
Repayment of mortgage notes payable ( 32,139) ( 5,105)
Proceeds from notes payable 40,000 27,000
Proceeds from issuance of common stock 25,000 25,000
Minority interest 10,000 -0-
Acquisition of shares of common stock ( 23) -0-
--------- --------
Net cash provided by financing
activities 42,838 46,895
--------- --------
Increase in cash 19,592 28,704
Cash, beginning 61,550 32,846
--------- --------
Cash, ending $ 81,142 $ 61,550
========= ========
F-5<PAGE>
ARCA CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
1998 1997
---- ----
SUPPLEMENTARY DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for interest $ 281,776 $ 307,680
========= =========
Cash paid for income taxes $ 400 $ 305
========= =========
Non-cash investing and financing activities:
Issuance of 25,000 and 1,260,000 shares
of common stock, respectively 25,000 85,000
Stock subscription promissory notes
receivable -0- ( 60,000)
--------- ---------
Proceeds from issuance of common stock $ 25,000 $ 25,000
========= =========
Issuance of 300,000 shares of common
stock as partial payment of legal
and professional fees $ -0- $ 46,600
========= =========
Debt incurred for environmental
remediation expenses $ -0- $ 101,081
========= =========
During the year ended December 31, 1998, 1,240,000 shares of common stock were
acquired by the Company in exchange for $60,000 in stock subscriptions
receivable.
During the year ended December 31, 1998, the Company acquired S&P Custom
Homes, Inc. through a subsidiary as follows:
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
============
F-6
<PAGE>
ARCA CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
SUPPLEMENTARY DISCLOSURE OF CASH FLOW INFORMATION (continued):
Non-cash investing and financing activities (continued:
During the year ended December 31, 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 extinguishment of debt $ 162,926
==========
The accompanying notes are an integral part of these consolidated financial
statements.
F-7<PAGE>
ARCA CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
Note 1 Nature of Operations
The Company was incorporated on December 22, 1995 in the state of New
Jersey for the purpose of acquiring, developing and selling residential real
estate. Through its subsidiaries, the Company is currently engaged in two
lines of business; owning and operating income producing real estate, and
financial services.
On December 31, 1995, the Company acquired, through its wholly owned
subsidiary Spring Village Holdings, Inc., an 80% partnership interest in SVG
Properties, L.P. (T/A Spring Village Apartments), which owns a 124 unit
residential apartment complex in Sharon Hill, Pennsylvania. The Company's 80%
partnership interest is comprised of a 4.5% general partnership interest and
75.5% limited partnership interest. The remaining 20% limited partnership
interests are held by unrelated individuals.
On March 31, 1998, the Company formed Beran Corp. ("Beran") and on May
28, 1998, entered into the financial services business through the acquisition
of the lending operations of a real estate development company. On November
24, 1998, Beran became a licensed lender of consumer loans in the State of New
Jersey. Beran is a 91% owned subsidiary of the Company.
Note 2 Business Acquisition
Effective May 28, 1998, the Company, 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. S&P was a real estate developer and
specialty finance company in which officers of the Company were stockholders.
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 the
issuance of 300,000 shares of the Company's common stock in exchange for the
S&P common stock, for a value of $127,916. This acquisition has been
accounted for as a purchase. In connection with the merger, 30,000 additional
shares of common stock were issued for $12,792 and are included in deferred
financing costs, and 25,000 shares of the Company's common stock were re-
acquired by the Company for reissuance. (See Note 9)
The operating results of Beran (formerly S&P) are included in the
Company's results of operations from the date of acquisition.
F-8
<PAGE>
ARCA CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
Note 3 Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of ARCA Corp.,
its wholly owned subsidiary, Spring Village Holdings, Inc. and its 91% owned
subsidiary, Beran Corp. The accounts of Spring Village Holdings, Inc. include
its 80% partnership interest in SVG Properties, L.P. (T/A Spring Village
Apartments). All significant intercompany transactions and accounts have been
eliminated.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Rental Real Estate Revenues
Rental real estate revenues include rental income and associated fees
earned from tenants.
The Company earns rental income under operating lease agreements with
tenants. Rental income is recognized on a straight-line basis over the
applicable lease term. The associated fees and other income are recognized as
earned.
Financial Services Revenues
Gross installment notes receivable are recorded net of unearned finance
charges, which are recognized as income using the interest method over the
term of the related loan. Accrual of finance charges is suspended when
payment performance is deemed unsatisfactory. When the loan becomes current,
the accrual is resumed and past-due income is recognized.
Also included in financial services revenue are loan origination and
other fees. Loan origination fees, net of related direct costs, are deferred
and amortized over the lives of the loans. Non-refundable fees are deferred
and amortized on a straight-line basis over twelve months, net of related
direct incremental costs associated with the fee.
Credit Losses
The installment notes receivable portfolio is reviewed regularly to
ensure that the allowance for loan losses is maintained at a level considered
adequate to cover potential losses. Loans are charged-off on a loan by loan
basis generally when no material payment has been received within a reasonable
time. The allowance is increased by provisions charged to expense and reduced
by loan charge-offs net of recoveries.
F-9<PAGE>
ARCA CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
Note 3 Summary of Significant Accounting Policies (continued)
Rental Property
Rental property is recorded at cost. Depreciation is provided using the
straight-line method over its estimated useful life. Maintenance and repairs
are charged to expense as incurred; major renewals and betterments are
capitalized. When items of property are sold or retired, the related cost and
accumulated depreciation are removed from the accounts and any gain or loss is
reflected in operations.
The estimated useful lives of the major classes of rental property, as
determined by the Company's management, are as follows:
Buildings and improvements - 40 years
Building equipment - 10 years
Office equipment - 5 years
Furniture and fixtures - 3 years
Cash Held in Escrow
Cash held in escrow includes amounts held by the lender to provide funds
necessary for the payment of taxes, insurance, replacements and other
specified capital expenditures of the Spring Village Apartments.
Deferred Financing Costs
Deferred financing costs are amortized on a straight-line basis over ten
years. Amortization expense for the years ended December 31, 1998 and 1997
was $9,919 and $2,160. Accumulated amortization as of December 31, 1998 and
1997 was $12,079 and $2,160.
Organization Costs
Organization costs were amortized on a straight-line basis over five
years. Amortization expense for the years ended December 31, 1998 and 1997 was
$4,500 and $1,500. Accumulated amortization as of December 31, 1998 and 1997
was $7,500 and $3,000.
F-10
<PAGE>
ARCA CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
Note 3 Summary of Significant Accounting Policies (continued)
Security Deposits Payable
Security deposits payable represent amounts received from tenants and are
included in cash on the accompanying balance sheet. As of December 31, 1998
and 1997, the tenant security deposits are fully funded. Tenant security
deposits are guaranteed by a stockholder.
Advertising
The Company expenses all advertising as incurred. Direct response
advertising for which future economic benefits are probable and specifically
attributable to the advertising is not material. Advertising expense for the
periods ended December 31, 1998 and 1997 was $10,493 and $7,089.
Income Taxes
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes."
Under the liability method prescribed by SFAS No. 109, a deferred asset or
liability is determined based on differences between the financial statement
and tax basis of assets and liabilities as measured by the enacted tax rates
which will be in effect when these differences reverse. Tax credits are
recorded as a reduction in income taxes. Valuation allowances are provided
if, it is more likely than not, that some or all of the deferred tax assets
will not be realized.
Net Loss Per Share
In 1997, the Company adopted SFAS No. 128, "Earnings Per Share". SFAS
No. 128, which simplifies the standards for computing and presenting earnings
per share, replaces the previously reported primary and fully diluted earnings
per share with basis and diluted earnings per share. Unlike primary earnings
per share, basic earnings per share excludes any dilutive effects of options,
warrants, and convertible securities. Dilutive earnings per share is very
similar to the previously reported primary earnings per share.
Basic net earnings per share is computed using the weighted average
number of common shares outstanding. The Company had no potential common
shares at December 31, 1998 and 1997. The computations of basic net earnings
per share are as follows:
F-11<PAGE>
ARCA CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
Note 3 Summary of Significant Accounting Policies (continued)
Net Loss Per Share (continued)
1998 1997
---- ----
Net loss before extraordinary item
and minority interest ($ 94,818) ($ 324,493)
Basic weighted average shares 2,110,136 1,662,500
Net loss per share before extraordinary item ($ .04) ($ .20)
Stock Based Compensation
The Company has adopted the disclosure-only provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation." The Company applies APB Opinion
No. 125, "Accounting for Stock Issued to Employees" to account for stock based
compensation using the intrinsic value method. Under APB No. 25, no
compensation cost is recognized in the financial statements. SFAS No. 123
requires companies using the intrinsic value method to make certain proforma
disclosures using the fair value method. During the years ended December 31,
1998 and 1997, there were no stock issuances below fair value.
Fair Value
The Company's financial instruments consist primarily of cash, accounts
and installment notes receivable, accounts payable, accrued expenses and debt.
The carrying amounts of the Company's financial instruments, excluding
installment notes receivable and debt, approximate fair value due to the short
maturity of these instruments. The Company's notes receivable approximate
fair value based on interest rates currently being offered for loans with
similar terms to borrowers of similar credit quality. The Company's debt
approximates fair value based on borrowing rates currently available to the
Company.
Statement of Cash Flows
For purposes of the statements of cash flows, the Company considers all
highly liquid investments purchased with a term to maturity of three (3)
months or less at the time of acquisition to be cash equivalents.
F-12
<PAGE>
ARCA CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
Note 3 Summary of Significant Accounting Policies (continued)
New Accounting Pronouncement
In 1998, the Company adopted SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information." SFAS No. 131 redefines how operating
segments are determined and requires qualitative disclosure of certain
financial and descriptive information about a company's operating segments.
Application of the disclosure requirements under this standard did not have a
material impact on the Company's financial statements for the year ended
December 31, 1998.
Reclassifications
Certain items included in the 1997 financial statements have been
reclassified to conform with the 1998 financial statement presentations.
Note 4 Rental Property
Rental property at December 31, 1998 and 1997 consisted of the following:
1998 1997
Land $ 292,792 $ 292,792
Building and improvements 3,176,945 3,150,051
Building equipment 98,709 104,906
Office equipment 32,220 10,452
Furniture and fixtures 3,516 -0-
---------- -----------
3,604,182 3,558,201
Less accumulated depreciation ( 280,829) ( 181,765)
---------- -----------
Rental property, net $3,323,353 $3,376,436
========== ===========
Depreciation expense for the periods ended December 31, 1998 and 1997 was
$99,064 and $93,005.
Note 5 Cash Held in Escrow
Cash held in escrow at December 31, 1998 and 1997 consisted of the
following:
1998 1997
Mortgage escrow deposits $ 38,628 $ 52,324
Reserve fund for replacements 12,121 2,304
Specified work escrow 2,050 23,041
--------- --------
$ 52,799 $ 77,669
========= ========
F-13<PAGE>
ARCA CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
Note 6 Notes receivable
Notes receivable at December 31, 1998 and 1997 consist of the following:
1998 1997
Mortgage notes receivable from company
owned by minority stockholders bearing
interest at 12%, secured by related real
estate, due in 1999 $ 29,409 $ -0-
Installment note receivable from a related party
in monthly payments of $760 including
interest at 12% through December 2004,
secured by equipment 38,908 -0-
Installment note receivable from minority
stockholder in monthly payments of $237
including interest at 12% through January 2001,
Unsecured 5,036 -0-
-------- -------
$ 73,353 $ -0-
======== =======
Interest income receivable from related parties in 1998 was $5,741.
Accrued interest income of $945 is included in notes receivable at December
31,1998.
Note 7 Mortgage Notes Payable
Mortgage notes payable at December 31, 1998 and 1997 consisted of the
following:
1998 1997
Mortgage note payable to First Union National
Bank in monthly installments of $17,962 including
interest at 7.78%, due October 2007, secured by
first mortgage on rental property, assignment of
leases, rents and security deposits, substantially
all assets of a subsidiary, and a limited payment
and performance guaranty of a stockholder $2,474,384 $2,496,481
F-14
<PAGE>
ARCA CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
Note 7 Mortgage Notes Payable (continued)
1998 1997
Mortgage note payable to Resource Properties,
Inc. ("RPI") in monthly installments of $7,964
including interest at 9.28%, (or 100% of the
subsidiary's net cash flow, as defined in the
agreement, if less), due October 2022, secured
by second mortgage on rental property and
the common stock of a subsidiary 916,045 926,087
-------- --------
$3,390,429 $3,422,568
========= =========
On September 17, 1997, the Company refinanced its existing debt as
permitted by RPI in an agreement dated November 22, 1996. As a condition of
the refinancing, RPI was granted an option to purchase the rental property for
$1.00 subject to the first and second mortgages in the event of default.
In accordance with the Agreement, RPI lent the Company $101,081 for the
removal of the underground oil tanks (Note 12) in order to permit the Company
to refinance its existing mortgage note payable.
Since the Company secured a new first mortgage loan (New Note) of at
least $2,300,000, RPI agreed to retain a subordinate position in the
promissory note payable, the mortgage note payable and the accrued interest
thereon, up to the difference between the New Note ($2,500,000) and $3,350,000
at 1.5% above the New Note's interest rate payable. The promissory note and
certain other debt were ultimately extinguished by RPI as part of the
refinancing (Note 13). In accordance with the Agreement, after payment of all
of the aforementioned debt, the residual amount of $312,926 was to be assigned
to a stockholder subject to certain covenants and restrictions. The obligation
was settled for $150,000 (Note 8). As a result of the refinancing, total debt
was reduced by $162,926, which the Company recorded as a gain on
extinguishment of debt.
Maturities of mortgage notes payable as of December 31, 1998 are as
follows:
1999 $ 34,893
2000 37,886
2001 41,136
2002 44,669
2003 48,506
Thereafter 3,183,339
---------
$3,390,429
=========
F-15<PAGE>
ARCA CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
Note 8 Notes Payable
Notes payable at December 31, 1998 and 1997 consists of the following:
1998 1997
---- ----
Notes payable to stockholders with interest at 12%
and 10% in 1998 and 1997, due on demand,
unsecured $ 74,500 $22,500
Note payable to related parties with interest at
10%, due on demand, unsecured 12,500 24,500
Note payable to stockholder in monthly payments
of $1,688 (or net cash flow after all debt service
of a subsidiary, if less), bears interest at 12%, due
December 31, 2000, unsecured (See Note 7) 150,000 150,000
------- -------
$ 237,000 $ 197,000
======= =======
Interest expense payable to stockholders and related parties in 1998 and
1997 was $21,548 and $6,100. Accrued interest of $22,610 and $5,100 was
payable to stockholders and related parties at December 31, 1998 and 1997.
Note 9 Equity and Stock Subscriptions Receivable
65,000 shares of common stock were issued to officers of the Company at
$.50 for services provided during the year ended December 31, 1997. The
shares were issued at fair value. The value of the services performed
($32,500) have been included in administrative expenses.
On March 31, 1997, 1,485,000 shares of common stock were issued at $.06
per share as part of an arms length negotiated transaction, in connection with
the Company's proposed acquisition of another company. The proposed
acquisition was contingent upon the closing of a bridge loan of not less than
$3,500,000. In the event that the bridge loan did not close by September 30,
1997, all 1,485,000 shares would be subject to repurchase by the Company for
nominal consideration. Furthermore, the acquisition called for all of the
assets and liabilities of the company to be transferred to a new company
formed for such purpose as part of the proposed acquisition. The stockholders
of record prior to the closing of such acquisition would then receive shares
in such new company in the form of a stock dividend. However, the 1,485,000
shares were issued "ex-dividend", and consequently, these stockholders would
not be entitled to shares in such new company. Additionally, voting rights of
such shares were granted to the President of the Company, until such time as
the closing had occurred. 1,250,000 shares were issued for cash of $15,000
and acceptance of a $60,000 promissory note receivable, and 235,000 shares
were issued to a consultant for services performed. The value of the services
performed by the consultant ($14,100) has been included in administrative
expenses for the year ended December 31, 1997.
F-16<PAGE>
ARCA CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
Note 9 Equity and Stock Subscriptions Receivable (continued)
As of December 31, 1997, the promissory note receivable was in default.
Since the proposed acquisition and other conditions precedent did not occur,
the 1,485,000 shares were subject to repurchase by the Company for nominal
consideration. In June 1998, 235,000 shares were acquired by the Company for
nominal consideration. In December 1998, 1,240,000 shares were acquired by
the Company in exchange for the $60,000 stock subscription receivable. The
remaining 10,000 shares were retained by the stockholder/consultant in
consideration of the previous payment of $15,000.
In January 1998, 25,000 shares of common stock were issued for $25,000 to
S&P Custom Homes, Inc., a company in which officers of the Company were
stockholders. Effective May 28, 1998, the Company purchased these shares for
$25,000 for reissuance pursuant to a Plan of Merger. In connection with the
Merger, 300,000 shares of common stock were issued at $.43 per share for a
total consideration of $127,916. 120,010 shares of the 300,000 shares were
issued to officers of the Company. The remaining 179,990 shares were issued
to non-affilitates in exchange for their shares of S&P common stock.
Furthermore, 30,000 shares of common stock were issued at $.43 per share for
services provided in connection with the Merger. 25,000 of these shares were
issued to an officer of the Company for legal services performed for a value
of $10,657. The total value of the 30,000 shares issued ($12,792) has been
included in deferred financing costs at December 31, 1998. (See Note 2)
Note 10 Income Taxes
The Company has deferred tax assets of $134,000 and $76,000 at December
31, 1998 and 1997 which represent the tax effects of net operating loss
carryforwards. The deferred tax assets have been reduced in their entirety by
a valuation allowance in each period. At December 31, 1998, the Company has
approximately $561,000 of net operating loss carryforwards to offset future
taxable income for both federal and state income tax purposes, expiring in
various years through 2018 for federal purposes and 2005 for state purposes.
Note 11 Related Party Transactions
Management of Rental Property
The rental property is managed by a company which is owned by a
stockholder. The current management agreement provides for a management fee
of 5% of gross income, which is typical for the industry. Management fees for
the years ended December 31, 1998 and 1997 were $39,874 and $37,197.
Included in the accrued expenses are management fees payable of $3,493
and $37,197 at December 31, 1998 and 1997.
F-17<PAGE>
ARCA CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
Note 11 Related Party Transactions (continued)
Leases
The Company leases its office space from a company which is owned by a
stockholder. Monthly rental payments are $600 per month. Rent expense for
the years ended December 31, 1998 and 1997 was $4,500 and $3,000.
Other Payments
During the year ended December 31, 1998, the Company incurred $10,660 of
legal fees payable to a stockholder/director in connection with the business
acquisition which is included in deferred financing costs. (Note 2)
During the year ended December 31, 1997, the Company incurred $65,488 of
legal fees payable to a stockholder/director, of which $15,488 was incurred in
connection with the refinancing and is included in deferred financing costs.
The Company also incurred $25,000 of consulting fees payable to a
stockholder/director during the year ended December 31, 1997. As of December
31, 1997, $27,500 of these fees are included in accrued expenses.
Note 12 Environmental Remediation Expense
Located beneath the Spring Village Apartment complex were seven inactive
underground storage tanks formerly used to store heating oil for the complex.
The tanks were not regulated by the State of Pennsylvania. During the year
ended December 31, 1997, the tanks were successfully removed at a cost of
$111,974, of which $101,081 was funded by the lender (RPI). (See Note 7)
Note 13 Extraordinary Item
In September 1997, the Company refinanced its existing debt with RPI. In
connection with the refinancing, certain debt was forgiven by the lender which
resulted in an extraordinary gain of $162,926, net of related income taxes of
$-0-. (See Note 7)
F-18
[ARTICLE] 5
[CIK] 0001006762
[NAME] ARCA CORP.
<TABLE>
<S> <C>
[PERIOD-TYPE] YEAR
[FISCAL-YEAR-END] DEC-31-1998
[PERIOD-END] DEC-31-1998
[CASH] 81,142
[SECURITIES] 0
[RECEIVABLES] 10,529
[ALLOWANCES] 0
[INVENTORY] 00
[CURRENT-ASSETS] 271,251
[PP&E] 3,604,182
[DEPRECIATION] 280,829
[TOTAL-ASSETS] 3,681,648
[CURRENT-LIABILITIES] 268,048
[BONDS] 3,390,429
[PREFERRED-MANDATORY] 0
[PREFERRED] 0
[COMMON] 239
[OTHER-SE] (112,247)
[TOTAL-LIABILITY-AND-EQUITY] 3,681,648
[SALES] 0
[TOTAL-REVENUES] 765,468
[CGS] 0
[TOTAL-COSTS] 559,971
[OTHER-EXPENSES] 19
[LOSS-PROVISION] 0
[INTEREST-EXPENSE] 300,315
[INCOME-PRETAX] (94,837)
[INCOME-TAX] 0
[INCOME-CONTINUING] (94,837)
[DISCONTINUED] 0
[EXTRAORDINARY] 0
[CHANGES] 0
[NET-INCOME] (94,837)
[EPS-PRIMARY] (.04)
[EPS-DILUTED] (.04)
</TABLE>
