As filed with the Securities and Exchange Commission on November 12, 1999
Registration No. 0-26777
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U.S. Securities and Exchange Commission
Washington, D.C. 20549
Amendment No. 2 to
Form 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES OF SMALL
BUSINESS ISSUERS Under Section 12(b) or (g) of the
Securities Exchange Act of 1934
APTA HOLDINGS, INC.
(Name of Small Business Issuer in Its Charter)
Delaware 22-3662292
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
215 West Main Street, Maple Shade, New Jersey 08052
(Address of Principal Executive Offices) (Zip Code)
(856) 667-0600
(Issuer's Telephone Number)
Securities to be registered pursuant to 12(b) of the Act: None
Securities to be registered pursuant to 12(g) of the Act:
Common Stock $.001 Par Value
(Title of Class)
PART I
ITEM 1. DESCRIPTION OF BUSINESS
General
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Apta Holdings, Inc. ("Apta" or the "Company") was incorporated on June 4, 1999
in the State of Delaware as a wholly owned subsidiary of ARCA Corp. On June
28, 1999, the Company acquired 100% of the assets and liabilities of the
parent, ARCA, as part of a merger by ARCA with Agate Technologies, Inc. Apta
is filing this Form 10-SB on a voluntary basis.
Included in the assets acquired by Apta were ARCA's wholly owned real estate
subsidiary, Spring Village Holdings, Inc. and ARCA's 80% owned finance company
subsidiary, Beran Corp. The following discussion of the business of the
Company includes the businesses of the two subsidiaries and incorporates the
prior activities of ARCA Corp.
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"), and to individuals, generally secured by
vehicles or other personal property ("consumer lending").
On December 31, 1995, the Company acquired through a subsidiary, for $50,000,
an 80% controlling interest in a 124 unit apartment complex located in Sharon
Hill, Pennsylvania. The Company 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, Beran Corp. was incorporated in the State of Delaware, 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 started making secured consumer loans in the first quarter of
1999. Beran reported $9,282 in financial services revenues for the six month
period ending June 30, 1999, and contributed $1,058 in net income to
consolidated results. As of June 30, 1999, Beran had $138,402 in loans
outstanding. Beran's operations for the six months ending June 30, 1998 were
minimal since it had only recently commenced operations.
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 also intends to expand its finance company.
Currently the Company has $138,402 in loans outstanding. The Company intends
to increase the loans outstanding to $250,000 by December 31, 2000. In order
to meet its stated goal, the Company has been and anticipates that it will
continue to originate approximately $15,000 per month in new consumer loans.
Real Estate Operations
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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 nine limited partners and the net proceeds from a $3,250,000
mortgage guaranteed by the Federal Housing Administration. Though the physical
aspects and the net income of the property were significantly improved, the
net income from operations was not sufficient to make the principal and
interest payments due on the first mortgage. The Partnership attributes this
to the high effective interest rate on the mortgage of 10 1/2 %, plus 1/2% for
insurance. In January, 1992, the Partnership defaulted on its mortgage. In
August, 1992, Santoro acquired a controlling interest in the Partnership,
along with other assets, in exchange for $125,000. At the time of the
acquisition in 1992, Mr. Santoro 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 entered into an agreement with RPI whereby RPI agreed
to recast the existing $3,490,419 debt to RPI as part of a proposed
refinancing.
On September 19, 1997, S.V.G. Properties, L.P., 80% of which is owned by Apta
through its wholly owned subsidiary Spring Village Holdings, Inc., completed
the refinancing of its long term debt. The refinancing completed 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):
Before After
Refinancing Refinancing
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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.
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 does not have a fixed time frame for the acquisition of
additional properties, but reviews potential acquisitions on an ongoing basis.
The Company does not currently have any specific plans for acquisitions, and
no potential acquisitions are currently under review. The Company is currently
focused on using its cash flow from operations, if any, to reduce debt, with
the remainder being reinvested in its existing property.
The Company intends to finance its future acquisitions through the use of its
own equity and initial acquisition debt up to 100% of the cost of the
property, including anticipated improvements. It is the Company's stated long
term goal to reduce overall debt to no greater than 50% of the market value of
the Company's real estate holdings.
The Company's policy is to acquire assets for income, with capital
appreciation being anticipated, but secondary to current income.
The Company has no limit as to the percentage of its assets which may be
invested in any particular property, except that the Company will not invest
in a transaction or a series of transactions which will require registration
as an Investment Company under the Investment Company Act of 1940.
The Company may invest in mortgages or other debt securities, including real
estate tax liens, and there are no restrictions on such investments except
that such debt securities or liens shall be secured by residential real estate
or unimproved acreage.
The Company may invest in direct or indirect interests in residential real
estate and unimproved land, including fee simple ownership, general or limited
partnership interests, listed or not listed common or preferred stock in real
estate companies or REITS which invest in residential real estate. The
Company does not intend to originate or warehouse mortgages, for purposes of
sale or servicing.
The Company, at the discretion of the Board of Directors, may change the
investment objectives and criteria as it deems appropriate and in the best
interests of the Company.
Industry Overview
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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 information contained in the above table was derived from the following
sources:
1) The metropolitan Philadelphia Apartment Survey
By: Insignia/ESG Capital Advisors, 1998
2) The March 1999 CB Richard Ellis Rental Survey of
Delaware County and Chester County, Pennsylvania
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.
Finance Company Operations
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The Company, through its 80% owned subsidiary Beran Corp., originates, sells
and services loans to businesses secured by real estate and other business
assets ("Business Purpose Loans"), and consumer loans typically to credit
impaired borrowers, including automobile loans secured by the title to the
automobile and the unconditional guarantee of participating dealers or
individual guarantors pre-approved by Beran.
The Company's customers currently consist primarily of two groups. The first
category of customers includes credit impaired borrowers who are generally
unable to obtain financing from banks, savings and loan associations or other
finance companies that have historically provided loans only to individuals
with favorable credit characteristics. These borrowers generally have
impaired or unsubstantiated credit characteristics and/or unverifiable income,
and respond favorably to the Company's marketing efforts. The second category
of customers includes borrowers who would qualify for loans from traditional
lending sources but elect to utilize the Company's products and services. The
Company's experience has indicated that these borrowers are attracted to the
Company's loan products as a result of its marketing efforts, the personalized
service provided by the Company's staff, and the timely response to loan
requests. Historically, both categories of customers have been willing to pay
the Company's fees and interest rates which are generally higher than those
charged by traditional lending sources.
The Company markets its services primarily by "networking". With respect to
Business Purpose Loans, the Company obtains new borrowers from recommendations
of existing borrowers and business associates. With respect to automobile
loans, an officer of the Company meets with dealers, salesmen and finance
managers, and provides them with detailed information about the Company's auto
loan program. Through this "network", loan requests flow into the Company,
which are promptly accepted or rejected based on the Company's underwriting
criteria. The Company does no mass media advertising.
Business Purpose Loans
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The Company began operations in 1998 and initially offered Business Purpose
Loans. The Company currently originates Business Purpose Loans in
Pennsylvania and New Jersey. The Company focuses its marketing efforts on
small businesses, including suppliers, vendors and subcontractors of Beran or
Apta Holdings, Inc. who do not meet all of the credit criteria of commercial
banks. The Company also focuses its marketing efforts on small businesses
that the Company's research indicates are predisposed to using the Company's
products and services.
The Business Purpose Loans originated by the Company generally are secured by
real estate, cash flow from investment real estate, or other assets. The
Company's Business Purpose Loans are generally originated with fixed rates and
typically have origination fees of 2%. The weighted average interest rate
received on the Business Purpose Loans originated by the Company was 12% for
the year ended December 31, 1998.
Automobile Loans
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The Company is also in the business of underwriting, purchasing and servicing
high-yield retail automobile installment loan contracts. Contracts will be
acquired from approved dealerships and other financial institutions. Vehicle
loans purchased by the Company are generally made to first time buyers and
others with impaired credit ratings. Therefore, the original interest rates
on the loans range from 18% to 25% per annum, and require a minimum 20% down
payment by the automobile purchaser. Each loan must also be unconditionally
guaranteed by the automobile dealer or a pre-approved individual guarantor
acceptable to Beran.
In addition to the guarantee, the Company "holds back" 10% of each loan as
additional security for the loans purchased by the Company. The holdback is
retained by the Company as a reserve against possible loan defaults.
Holdbacks from automobile dealers by lenders are common in this industry, but
vary in amount and terms from lender to lender. The Company's holdback policy
is similar to other lenders with which the Company competes.
The Company does not anticipate any shortfalls in the reserve account. The
Company can, if necessary, sell repossessed automobiles at a price which
significantly reduces the potential losses on defaulted loans.
Employees
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In addition to Harry J. Santoro, the President and Treasurer, 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 and perform administrative functions.
Facilities
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The Company currently shares its principal executive offices with Santoro
Realty, Inc. in approximately 600 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 $900, 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. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Plan of Operation
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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. Based on the Company's own experience over the past five years and a
review of market analysis reports published by others, the Company believes
there will continue to be a need in the marketplace for moderately priced,
well-maintained apartment rental units. 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%.
With respect to its finance company business, the Company plans to slowly
increase its loan pool by originating new loans. During the first six months
of 1999, the Company originated $92,621 in loans, averaging $15,333 per month.
Currently its finance company subsidiary does not materially affect its
operating results.
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-SB.
1998 Compared To 1997
The Company reported total revenues of $802,908 in 1998, compared to $742,810
in 1997, an increase of $60,098, 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 $6,053 in
revenues from financial services realized by Beran Corp., the Company's
finance 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 $69,598, to $566,756. Administrative
expenses increased by $45,854 to $126,848. In 1998, there was an increase in
administrative expenses related to the operations of the apartment complex and
new administrative overhead related to the start-up of our finance company.
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 $10,871, 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 and amortization increased by $13,539 to $109,204.
On September 19, 1997, the Company refinanced its debt. Interest expense
declined from $323,752 in 1997 to $296,267, 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 increased from $53,719 in 1997 to $58,167 in 1998. The Company
reported a basic net loss of ($.03) per share in 1998, compared to a basic
net loss of ($.03) per share in 1997.
Six Months Ending June 30, 1999 Compared to June 30, 1998
The Company reported total revenues of $405,836 and $394,731 in 1999 and 1998,
respectively. Occupancy was approximately 94% and 94%, respectively. A small
increase in the average unit rental rate resulted in the $1,872 increase in
rental revenue. Financial services revenue increased by $9,233 to $9,282 due
to more loans outstanding.
Administrative expenses increased to $75,067 in 1999 from $55,271 in 1998,
primarily due to costs related to an increase in staff at the apartment
complex and the start-up of our finance company. Utilities increased by
$3,520. Operating and maintenance expense decreased from $58,562 in 1998 to
$53,970 in 1999. Taxes and insurance increased by $2,726, primarily due to
expanded insurance coverage. Depreciation increased by $2,728 to $54,383 in
1999, reflecting recent capital improvements being depreciated. Operating
income declined from $122,475 in 1998 to $109,402 in 1999, primarily due to
the increases in expenses discussed above.
Net loss increased from ($25,569) to ($42,486) in 1999. Basic net loss per
share increased from ($.01) in 1998 to ($.04) in 1999.
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
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At December 31, 1997 the Company had a deficit in working capital of $15,323
including cash held in escrow for anticipated future expenses. At December
31, 1998, the Company had $67,613 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 $31,942 in cash. During the year ending
December 31, 1997, the Company received $22,000 in proceeds from notes payable
to stockholders and related parties. Operations provided an additional
$53,309 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 $29,138. The Company had $61,080 in cash on December 31, 1997,
exclusive of $77,669 cash held in escrow accounts.
During the year ending December 31, 1998, the Company realized $11,900 in
proceeds from notes payable, and $10,000 through the sale of common stock of
Beran Corp., the Company's finance subsidiary, to one individual, an
accredited investor who is knowledgeable in the business of Beran Corp. This
sale of stock reduced the Company's ownership of Beran Corp. from 100% to 91%
as of December 31, 1998. Operations provided an additional $46,614. The
Company used $32,139 to repay mortgage notes payable. The Company received
$7,637 in cash from an acquisition, collected $114,981 from notes receivable,
made $93,334 in new loans, and used $45,981 to purchase property and
equipment. The net increase in cash for the year was $19,678. The Company
had $80,758 in cash on December 31, 1998, exclusive of $52,799 cash held in
escrow accounts.
During the six months ending June 30, 1999, the Company received $8,600 in
proceeds from notes payable net of repayments, $85,100 from predecessor, and
$15,000 from the sale of stock in Beran Corp., the Company's finance
subsidiary. This sale of Beran Corp. stock represented an additional purchase
by the accredited investor discussed in the previous paragraph, and reduced
the Company's ownership of Beran Corp. from 91% to 80% as of June 30, 1999.
Operations provided $21,039. The Company used $11,164 to purchase property
and equipment, made $65,049 in loans net of repayments, and reduced mortgage
debt by $17,088. The net increase in cash for the period was $36,438. The
Company had $117,196 in cash on June 30, 1999, exclusive of $72,905 in cash
held in escrow accounts.
The Company's balance sheet is highly leveraged. As discussed previously in
this Form 10-SB, 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 totaling $34,893 on long term
debt. There can be no assurance that the Company will be successful in its
efforts to generate sufficient cash flow to meet its scheduled debt service or
other cash requirements.
Planned Capital Expenditures
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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
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The following selected financial data has been derived from the Company's
financial statements included elsewhere in this Form 10-SB, and should be
read in conjunction with the financial statements and notes thereto.
Statement of Operations Data
Predecessor Predecessor
----------- ----------------
6/30/99 6/30/98 12/31/98 12/31/97
-------- -------- -------- --------
Total Revenues 405,836 394,731 802,908 742,810
Operating Expenses 448,110 420,300 861,056 959,455
Loss before extraordinary
item and minority interest (42,274) (25,569) (58,148) (216,645)
Extraordinary item 0 0 0 162,926
Loss before minority interest (42,274) (25,569) (58,148) ( 53,719)
Minority Interest 212 0 (19) 0
Net income (loss) (42,486) (25,569) (58,167) ( 53,719)
Basic net (loss) per share ( .04) ( .01) ($.03) ( .03)
Average number of
shares outstanding - basic 1,000,000 2,131,667 2,110,136 1,662,500
Predecessor Predecessor
----------- ----------------
Balance Sheet Data 6/30/99 6/30/98 12/31/98 12/31/97
- ------------------- -------- -------- -------- --------
Working capital (deficit) $ 66,470 $ 92,159 $ 67,613 ($15,323)
Total Assets 3,714,689 3,704,702 3,669,751 3,661,131
Total Liabilities 3,815,895 3,731,055 3,743,683 3,786,915
Minority Interest 25,231 0 10,019 0
Stockholders' Equity
(Deficit) $(126,437) $( 26,353) ( 83,951) (125,784)
Impact of the Year 2000 Issue
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The Company's State of Readiness
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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.
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
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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
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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
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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
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The Company is making this statement in order to satisfy the "safe harbor"
provisions contained in the Private Securities Litigation Reform Act of 1995.
The foregoing discussion includes forward-looking statements relating to the
business of the Company. Forward-looking statements contained herein or in
other statements made by the Company are made based on management's
expectations and beliefs concerning future events impacting the Company and
are subject to uncertainties and factors relating to the Company's operations
and business environment, all of which are difficult to predict and many of
which are beyond the control of the Company, that could cause actual results
of the Company to differ materially from those matters expressed in or implied
by forward-looking statements. The Company believes that the
following factors, among others, could affect its future performance and cause
actual results of the Company to differ materially from those expressed in or
implied by forward-looking statements made by or on behalf of the Company:
(a) the effect of changes in interest rates; (b) the rental rate and demand
for apartment rental units; (c) fluctuations in the costs to operate the
properties owned by the Company; (d) uninsurable risks; and (e) general
economic conditions.
ITEM 3. DESCRIPTION OF PROPERTY
The Complex
- ------------
The Spring Village Apartment complex is a garden-type apartment complex
consisting of seven buildings containing 60 one-bedroom units, 49 two-bedroom
units and 15 studio units, located in Sharon Hill, Delaware County,
Pennsylvania. Construction features include brick veneer over concrete block
exterior walls, wood frame, asphalt shingle gable roofs, aluminum frame
windows and sliding patio doors. Each unit is heated by gas fired hot water
baseboard heat. All units have wall mounted air conditioners. The buildings
were built in 1966. The quality of construction and current physical condition
of the units is believed by the Company to be average. The Company is not
aware of any material adverse environmental attributes of the property. 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.
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, 1998 of the Company's buildings and
equipment was $3,449,732 and $181,140 respectively, with $1,436,652 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
--------
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.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as of June 30, 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%
- -----------------
[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 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
The following table sets forth the names and ages of the Company's
current Executive Officers and Directors, together with all positions and
offices held with the Company by such Executive Officers. Officers are
elected to serve until the meeting of the Board of Directors following the
next Annual Meeting of Shareholders or until their successors have been
elected and have qualified.
Age Title
---- ------
Harry J. Santoro, CPA 46 President, Treasurer and
Director
Stephen M. Robinson, Esq. 57 Vice President, Secretary
and Director
Harry J. Santoro. Mr. Santoro is 46 years old and holds a Bachelor of
Science Degree in Accounting from Drexel University, Philadelphia, PA, where
he graduated Summa Cum Laude. He began work in 1975 with Haefele, Van Sciver
& Co., a local certified Public Accounting firm. Three years later he became
a Certified Public Accountant and was made a partner in the firm. The firm's
name was changed to Haefele, Van Sciver, Santoro & Co. While at the firm he
provided tax and financial planning services to individuals and businesses in
a wide range of industries, including real estate development. He left the
firm in 1982 to form a 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 57 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 Stephen M. Robinson, P.A. 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 6. EXECUTIVE COMPENSATION
The following table sets forth the compensation of the named executive
officers for each of the Registrant's last three completed fiscal years,
including compensation paid by ARCA Corp., the Company's predecessor.
EXECUTIVE COMPENSATION SUMMARY TABLE
Annual Compensation
Name and Other Annual
Principal Position Year Salary Bonus Compensation
- ------------------- ---- ------ ------ ------------
Harry J. Santoro, 1996 0 0 $36,770 (1)
President, Treasurer 1997 $25,000 0 $37,197 (1)
1998 0 0 $39,874 (1)
Stephen M. Robinson, 1996 0 0 0
VP, Secretary 1997 $50,000 0 $15,488 (2)
1998 0 0 10,660 (2)
- -----------------
(1) *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.
(2) Includes fees payable to Stephen M. Robinson, P.A. as corporate counsel.
Employment and Consulting Agreements
- -------------------------------------
There are no employment agreements with the officers of the Company.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED 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 600 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 $900, 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 $15,488 of
legal fees payable to Stephen M. Robinson, P.A., in connection with the
refinancing and is included in deferred financing costs. Stephen M.
Robinson, the sole shareholder of Stephen M. Robinson, P.A., is Vice President
and Secretary of the Company.
In January 1998, 25,000 shares of ARCA Corp. common 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 ARCA Corp. as a result of the merger with
S&P.
Effective May 28, 1998, ARCA Corp. acquired S&P Custom Homes, Inc. (see Notes
to Consolidated Financial Statements Note 3). 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 ARCA Corp. 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 ARCA Corp.
common stock as a result of his ownership in S&P, plus an additional 25,000
shares of stock for services rendered. Stephen M. Robinson, the sole
shareholder of Stephen M. Robinson, P.A., is Vice President, Secretary, and a
director of the Company.
ITEM 8. DESCRIPTION OF SECURITIES
The authorized capital stock of the Company consists of 2,000,000
shares of common stock, par value $.001 per share ("Common Stock"). There
are currently 1,000,000 shares of common stock issued and outstanding.
Common Stock
Holders of shares of Common Stock of the Company are entitled to cast one
vote for each share held at all shareholders meetings for all purposes,
including the election of directors, and to share equally on a per share basis
in such dividends as may be declared by the Board of Directors out of funds
legally available. Upon liquidation or dissolution, each outstanding share of
Common Stock will be entitled to share equally in the assets of the Company
legally available for distribution to shareholders after the payment of all
debts and other liabilities. Shares of Common Stock are not redeemable, have
no conversion rights and carry no preemptive or other rights to subscribe to
or purchase additional shares in the event of a subsequent offering. All
outstanding shares of Common Stock are and will be fully paid and non-
assessable, when issued.
Non-Cumulative Voting
The Common Stock does not have cumulative voting rights which means that
the holders of more than fifty percent of the Common Stock voting for election
of directors can elect one hundred percent of the directors of the Company if
they choose to do so. Currently, officers and directors own 55.3% of issued
and outstanding common stock of the Company (see Item 4, "Security Ownership
of Certain Beneficial Owners and Management.")
Dividends
There are no limitations or restrictions upon the right of the Board of
Directors to declare dividends out of any funds legally available.
<PAGE>
PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
OTHER SHAREHOLDER MATTERS
(a) Market Information. There is no public trading market for the
common stock of Apta, and no stock certificates have been distributed to the
Apta shareholders pending notification by the SEC staff that there are no
further comments with respect to this Form 10-SB. The common stock of ARCA
Corp., the Company's predecessor, was quoted on the OTC Bulletin Board under
the symbol "ARCC". However, the market for ARCA common stock was sporadic and
thinly traded, and the price range of the common stock was $.25 to $1.25 per
share.
(b) Holders. There are 453 holders of record of Apta common stock.
The Company estimates that there are at least another 15 shareholders whose
stock is held in street name.
(c) Dividends. Neither Apta nor its predecessor ARCA has declared or
paid any cash dividends on its common stock. Apta presently, and for the
foreseeable future, intends to retain all its earnings, if any, for the
development of the Company's business. The declaration and payment of cash
dividends in the future will be at the discretion of the Board of Directors,
and will depend upon a number of factors, including among others, future
earnings, operations, funding requirements, the general financial condition of
the Company, and such other factors as the Board of Directors may deem
relevant.
(d) Options. There are no options outstanding.
(e) 144 Shares. Of the 1,000,000 outstanding shares, 552,510 shares
are held by affiliates of the Company. All but 82,500 of these shares have
been held more than one year and are subject to the restrictions set for in
rule 144 for shares held by affiliates. An additional 2,500 shares were
issued in January, 1999 to an non-affiliate and are subject to the provisions
of Rule 144. All of the remaining 444,990 shares have been held for more than
one year.
ITEM 2. LEGAL PROCEEDINGS
No material legal proceedings to which the Company or any of its property
is subject are pending, nor to the knowledge of the Company are any such legal
proceedings threatened.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES
The following information sets forth certain information for
all securities of the Company and ARCA Corp., its predecessor, sold during the
past three years without registration under the Securities Act of 1933 (the
"Securities Act"). The following pertains to each of the transactions:
. There were no underwriters involved in any of the transactions.
. All of the securities issued were restricted common stock of ARCA
Corp., and each of the certificates issued was stamped with the following
restrictive legend:
"The shares represented by this certificate have not been registered under the
Securities Act of 1933. The shares have been acquired for investment and may
not be sold, transferred or assigned in the absence of an effective
registration statement for these shares under the Securities Act of 1933 or an
opinion of the Company's counsel that registration is not required under such
Act."
. No form of advertising or general solicitation was utilized in
connection with any of the offers or sales of such securities.
. Redistribution of the common stock was subject to the provisions of
Rule 144 of the Securities Act.
. Each of the offerees either had access to the information (in the
case of the shares sold to Harry J. Santoro or Stephen M. Robinson, who are
officers and directors of the Registrant) or were furnished with the
Registrant's latest Form 10-KSB, Form 10-QSB's for the fiscal periods
subsequent to the end of the fiscal period, and all forms 8-K filed by the
Registrant since the end of the fiscal period.
. Each of the purchasers represented that the purchaser was acquiring
the securities for the purchaser's own account, for investment only, and not
with a view toward the resale, fractionalization, division or distribution
thereof, and further, the investors each represented that they had no present
plans to enter into any contract, undertaking, agreement, or arrangement for
any such resale, distribution, division or fractionalization thereof.
On July 7, 1997, 15,000 shares of the common stock of ARCA Corp., the
Company's predecessor, were issued, in reliance on Section 4(2) of the
Securities Act, to Harry J. Santoro, President, Treasurer and a Director of
the Company, in consideration for services rendered to ARCA valued at $7,500.
On July 7, 1997, 50,000 shares of ARCA's common stock were issued, in
reliance on Section 4(2) of the Securities Act, to Stephen M. Robinson, P.A.
(Stephen M. Robinson, the sole shareholder of Stephen M. Robinson, P.A., is
Vice President, Secretary and a director of the Company) in consideration for
services rendered to ARCA valued at $25,000.
On September 30, 1997, 10,000 shares of ARCA's common stock were sold for
a consideration of $10,000, to Kathleen M. Pesch, a sophisticated investor,
who had knowledge of the Company and requested an opportunity to invest in the
Company. Ms. Pesch was known to the officers of the Registrant to be a
college graduate and an experienced, knowledgeable investor capable of
evaluating the merits and risks of an investment in the common stock. Ms.
Pesch was given the opportunity to obtain additional information and to ask
questions of and receive answers from the officers and directors of the
Company concerning the Company and the terms and conditions of the offering.
Such shares were issued in reliance on Section 4(2) of the Securities Act.
On January 15, 1998, 25,000 shares of ARCA's common stock were sold to
S&P Custom Homes, Inc. for $25,000, in reliance on Section 4(2) of the
Securities Act. S&P Custom Homes, Inc. was a New Jersey corporation, in which
Harry J. Santoro, the President, Treasurer and a director of the Registrant,
and Stephen M. Robinson, the Vice President, Secretary and a director of the
Registrant, were at the time of the purchase, majority shareholders, officers
and directors. Such shares were reacquired by ARCA in ARCA's acquisition of
S&P on June 6, 1998.
On June 6, 1998, 300,000 shares of ARCA's common stock were issued to the
shareholders of S&P Custom Homes, Inc. in consideration for the acquisition of
such company by ARCA. The transaction was effected in reliance upon Rule 506
of Regulation D of the Securities Act. Harry J. Santoro, President, Treasurer
and a director of ARCA and the Company, received 50,640 shares of ARCA's
common stock as a result of his ownership in S&P. Stephen M. Robinson, Vice
President, Secretary and Treasurer of the Company, received 69,370 shares of
ARCA's common stock as a result of his ownership of S&P. Each of the
shareholders of S&P received the type of information and made the investment
representations required by Regulation D.
On June 30, 1998, 30,000 shares of ARCA's common stock were issued,
valued at $12,792, in reliance on Section 4(2) of the Securities Act, for
services rendered relating to the S&P acquisition; 25,000 of such shares were
issued to Stephen M. Robinson, P.A. (Stephen M. Robinson, the sole shareholder
of Stephen M. Robinson, P.A., is Vice President, Secretary and a director of
the Company), and the remaining 5,000 shares were issued to a sophisticated
investor.
On January 15, 1999, 37,500 shares of ARCA's common stock were issued, in
reliance on Section 4(2) of the Securities Act, to H. James Santoro, Inc., a
company owned by Harry J. Santoro, President, Treasurer and a Director of the
Company, for a consideration of $9,375.
On January 15, 1999, 45,000 shares of ARCA's common stock were issued, in
reliance on Section 4(2) of the Securities Act, to Stephen M. Robinson, Vice
President, Secretary and a Director of the Company, for a consideration of
$11,500.
On January 15, 1999, 2,500 shares of ARCA's common stock were issued, to
Trudy M. Self, a sophisticated investor for a consideration of $625. Ms.
Self, an individual actively engaged in the securities industry as a public
relations consultant for public companies, was a knowledgeable investor
capable of evaluating the merits and risks of an investment in the common
stock. Ms. Self was given the opportunity to obtain additional information
and to ask questions of and receive answers from the officers and directors of
the Company concerning the Company and the terms and conditions of the
offering. Such shares were issued in reliance on Section 4(2) of the
Securities Act.
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The by-laws of the Company provide that every person who is or was a
director or officer, employee or agent of the Company, or any person who
serves or has served in any capacity with any other enterprise at the request
of the Company, shall be indemnified by the Company to the fullest extent
permitted by law. The Company shall indemnify the persons listed above
against all expenses and liabilities reasonably incurred by or imposed on them
in connection with any proceedings to which they have been or may be made
parties, or any proceedings in which they may have become involved by reason
of being or having been a director or officer of the Company, or by reason of
serving or having served another enterprise at the request of the Company,
whether or not in the capacities of directors or officers of the Company at
the time the expenses or liabilities are incurred.
PART F/S
The following financial statements are filed as part of this
registration statement on Form 10-SB.
APTA HOLDINGS, INC. (PREDECESSOR) AND SUBSIDIARIES
Report of Independent Accountants
Consolidated Balance Sheets as of December 31, 1997 and 1998
Consolidated Statements of Operations for the years ended December
31, 1997 and 1998
Consolidated Statements of Cash Flows for the years ended December
31, 1997 and 1998
Notes to Financial Statements
APTA HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets as of June 30, 1999 and 1998 (unaudited)
Consolidated Statements of Operations for the years ended June
30, 1999 and 1998 (unaudited)
Consolidated Statements of Cash Flows for the years ended June
30, 1999 and 1998 (unaudited)
Consolidated Statements of Changes in Stockholders Deficit
for the six months ended June 30, 1999 and 1998 (unaudited)
Notes to Financial Statements
APTA HOLDINGS, INC. (PREDECESSOR) AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
<PAGE>
APTA HOLDINGS, INC. (PREDECESSOR) AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
TABLE OF CONTENTS
Page
----
Independent Auditors' Report 1
Consolidated Financial Statements
Consolidated Balance Sheets 2
Consolidated Statements of Operations and Deficit 3 - 4
Consolidated Statements of Cash Flows 5 - 6
Notes to Consolidated Financial Statements 7 - 16
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
of ARCA Corp. and Subsidiaries
We have audited the accompanying consolidated balance sheets of
APTA HOLDINGS, INC. (PREDECESSOR) AND SUBSIDIARIES as of December 31, 1998
and 1997, and the related consolidated statements of operations and 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
APTA HOLDINGS, INC. (PREDECESSOR) 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
June 29, 1999
1
<PAGE>
APTA HOLDINGS, INC. (PREDECESSOR) 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) 80,758 61,080
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) 75,531 84,171
Organization costs, net (Note 3) -0- 1,500
------------ -----------
Total Assets $ 3,669,751 $ 3,661,131
LIABILITIES AND DEFICIT
Liabilities
Mortgage notes payable (Note 7) $3,390,429 $ 3,422,568
Notes payable (Note 8) 203,900 192,000
Accrued interest 41,876 27,197
Accounts payable 21,845 17,413
Accrued expenses 25,655 68,552
Security deposits payable (Note 3) 56,407 55,484
Other liabilities 3,571 3,701
------------ -----------
Total Liabilities 3,743,683 3,786,915
Minority interest (Notes 2 & 3) 10,019 -0-
Commitments and contingencies (Note 11)
Deficit ( 83,951) ( 125,784)
------------ -----------
Total Liabilities and Deficit $3,669,751 $ 3,661,131
The accompanying notes are an integral part of these
consolidated financial statements.
2
APTA HOLDINGS, INC. (PREDECESSOR) AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND DEFICIT
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
1998 1997
---- ----
Revenues
Rental real estate $ 796,855 $ 742,810
Financial services 6,053 -0-
--------- ---------
Total revenues 802,908 742,810
Operating Expenses
Administrative expenses 126,848 80,994
Utilities expense 79,750 88,027
Operating and maintenance 134,188 132,057
Taxes and insurance 116,766 127,637
Environmental remediation expense -0- 111,974
Depreciation and amortization 109,204 95,665
--------- ---------
Total operating expenses 566,756 636,354
--------- ---------
Operating income 236,152 106,456
Other income (expense)
Interest income 1,967 651
Interest expense ( 296,267) ( 323,752)
--------- ---------
Total other income (expense) ( 294,300) ( 323,101)
--------- ---------
Loss before extraordinary item
and minority interest ( 58,148) ( 216,645)
Extraordinary item
Net gain on extinguishment of debt -0- 162,926
Loss before minority interest ( 58,148) ( 53,719)
Minority interest ( 19) -0-
Net loss ( 58,167) ( 53,719)
Deficit, beginning ( 125,784) ( 72,065)
Contributions from predecessor 100,000 -0-
Deficit, ending ($ 83,951) ($125,784)
3
APTA HOLDINGS, INC. (PREDECESSOR) AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND DEFICIT
(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
1998 1997
---- ----
Basic net loss per share (Notes 1 and 3)
Loss before extraordinary item
and minority interest ($ .03) ($ .13)
Extraordinary item -0- .10
Minority interest -0- -0-
--------- ---------
Net loss ($ .03) ($ .03)
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.
4
APTA HOLDINGS, INC. (PREDECESSOR) 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 ($ 58,167) ($ 53,719)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Minority interest in net loss of consolidated
Subsidiary 19 -0-
Environmental remediation expense -0- 101,081
Depreciation and amortization expense 109,204 95,665
Gain on extinguishment of debt -0- ( 162,926)
(Increase) decrease in:
Accounts receivable ( 1,789) 6,841
Prepaid expenses ( 930) 26,657
Cash held in escrow 24,870 3,740
Increase (decrease) in:
Accounts payable 4,432 3,307
Accrued interest 14,679 16,722
Accrued expenses ( 46,497) 9,457
Other liabilities ( 130) 3,701
Security deposits payable 923 2,783
--------- ---------
Net cash provided by operating activities 46,614 53,309
--------- ---------
Cash Flows From Investing Activities:
Purchases of property and equipment ( 45,981) ( 41,066)
Cash received from acquisition 7,637 -0-
Collection of installment notes receivable 114,981 -0-
Loans made ( 93,334) -0-
--------- ---------
Net cash used in investing activities ( 16,697) ( 41,066)
--------- ---------
Cash Flows from Financing Activities:
Repayment of mortgage notes payable ( 32,139) ( 5,105)
Proceeds from notes payable 11,900 22,000
Minority interest 10,000 -0-
--------- ---------
Net cash provided by (used in) financing activities ( 10,239) 16,895
--------- ---------
Increase in cash 19,678 29,138
Cash, beginning 61,080 31,942
--------- ---------
Cash, ending $ 80,758 $ 61,080
========= =========
5
APTA HOLDINGS, INC. (PREDECESSOR) AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
SUPPLEMENTARY DISCLOSURE OF CASH FLOW INFORMATION:
1998 1997
---- ----
Cash paid for interest $281,588 $307,030
======== ========
Cash paid for income taxes $ 200 $ 55
======== ========
Non-cash investing and financing activities:
Debt incurred for environmental remediation
Expenses $ -0- $101,081
======== ========
During the year ended December 31, 1998, the Company acquired S&P Custom
Homes, Inc. through a subsidiary as follows:
Contribution from predecessor $ 100,000
Notes receivable ( 95,000)
Other current assets ( 963)
Accrued expenses 3,600
------------
Cash received from acquisition $ 7,637
============
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.
6
APTA HOLDINGS, INC. (PREDECESSOR) AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 1 - ORGANIZATION AND BASIS OF PRESENTATION
On June 8, 1999, ARCA Corp. ("ARCA") announced its intention to enter into
an Exchange Agreement ("Agreement") whereby Agate Technologies, Inc. ("Agate")
will become a majority-owned subsidiary of ARCA and Agate stockholders will
receive a controlling interest in ARCA. ARCA is a financial services holding
company. 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 and consumers, generally
secured by real estate or other assets.
On June 28, 1999, immediately prior to the closing of the Agreement,
ARCA transferred all of its assets and liabilities to a new Delaware
corporation named APTA Holdings, Inc. ("APTA") that was formed on June 4,
1999. Eligible ARCA shareholders of record on June 28, 1999 ("Dividend Record
Date") will receive one share of APTA's common stock for each share of ARCA's
common stock held on the Dividend Record Date. As of the Dividend Record
Date, there were 1,000,000 shares of ARCA common stock outstanding eligible
to receive the dividend.
The accompanying consolidated financial statements of the predecessor to
APTA (the "Company") include the assets and liabilities to be transferred and
assumed by APTA from the time the assets and liabilities were acquired or
incurred, respectively, by ARCA. Such financial statements have been prepared
using the historical basis of the assets and liabilities and historical
results of operations related to the Company's assets.
The accompanying consolidated financial statements have been prepared on
the accrual basis of accounting. The statements have been prepared in
accordance with the applicable rules and regulations of the Securities and
Exchange Commission for the preparation of financial statements of
subsidiaries to be spun off. In management's opinion, the accompanying
consolidated financial statements include all common and corporate level
expenses incurred on behalf of the Company by ARCA. Management has allocated
such expenses based on its best estimate of actual time and effort expended
for the benefit of APTA, and believes such allocation to be reasonable.
Net loss per Share
Net loss per share has been computed giving effect to the distribution
of 1 share of APTA common stock for each common share of ARCA. Accordingly,
weighted average common shares outstanding, have been computed based on the
shares outstanding of ARCA for the respective period. Calculated earnings per
share may not be representative of earnings per share subsequent to the
transfer of the assets and liabilities from ARCA since the level of other
expenses incurred by APTA may be higher than was incurred on a historical
basis.
7
APTA HOLDINGS, INC. (PREDECESSOR) AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 2 NATURE OF OPERATIONS
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.
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 a
$100,000 increase in the net assets of the Company representing the historical
basis of the assets and liabilities merged from S&P. The merger has been
accounted for in a manner similar to that of a pooling of interests, and
accordingly, financial information for periods prior to the merger reflect
retroactive restatement of the combined financial position and operating
results of Beran and S&P with no change in the historical basis of the assets
and liabilities merged. Net revenues, loss before extraordinary item and
minority interest, and net loss of Beran and S&P prior to the merger were
immaterial. There were no intercompany transactions between the companies
prior to the merger.
NOTE 3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of APTA
Holdings, Inc. (Predecessor), 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.
8
APTA HOLDINGS, INC. (PREDECESSOR) AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
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.
9
APTA HOLDINGS, INC. (PREDECESSOR) AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Rental Property (continued)
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 $8,640 and $2,160. Accumulated amortization as of December 31, 1998 and
1997 was $10,800 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 $1,500 and $500. Accumulated amortization as of December 31, 1998 and
1997 was $2,500 and $1,000.
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.
10
APTA HOLDINGS, INC. (PREDECESSOR) AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 $7,089.
Income Taxes
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes."
Under the liability method prescribed by SFAS No. 109, a deferred asset or
liability is determined based on differences between the financial statement
and tax basis of assets and liabilities as measured by the enacted tax rates
which will be in effect when these differences reverse. Tax credits are
recorded as a reduction in income taxes. Valuation allowances are provided if,
it is more likely than not, that some or all of the deferred tax assets will
not be realized.
Net Loss Per Share
In 1997, the Company adopted SFAS No. 128, "Earnings Per Share". SFAS
No. 128, which simplifies the standards for computing and presenting
earnings per share, replaces the previously reported primary and fully
diluted earnings per share with basis and diluted earnings per share.
Unlike primary earnings per share, basic earnings per share excludes any
dilutive effects of options, warrants, and convertible securities. Dilutive
earnings per share is very similar to the previously reported primary
earnings per share.
Basic net earnings per share is computed using the weighted average number
of common shares outstanding. The Company had no potential common shares at
December 31, 1998 and 1997. The computations of basic net earnings per
share are as follows:
1998 1997
Net loss before extraordinary item
and minority interest ($ 58,148) ($ 216,645)
========= =========
Basic weighted average shares 2,110,136 1,662,500
========= =========
Net loss per share before extraordinary item ($ .03) ($ .13)
========= =========
11
APTA HOLDINGS, INC. (PREDECESSOR) AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
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, since the Company's financing segment's operations were
immaterial.
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
========= ==========
12
APTA HOLDINGS, INC. (PREDECESSOR) AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 4 RENTAL PROPERTY (CONTINUED)
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
======== ========
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 from related parties in 1998 was $5,741. Accrued
interest income of $945 is included in notes receivable at December 31,1998.
13
APTA HOLDINGS, INC. (PREDECESSOR) AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
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
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 11) 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 12). 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.
14
<PAGE>
APTA HOLDINGS, INC. (PREDECESSOR) AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 7 MORTGAGE NOTES PAYABLE (CONTINUED)
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
==========
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 $ -0- $ 17,500
Note payable to related parties with interest at
10%, due on demand, unsecured 53,900 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
------- -------
$ 203,900 $ 192,000
Interest expense payable to stockholders and related parties in 1998 and
1997 was $17,500 and $4,850. Accrued interest of $18,750 and $3,750 was
payable to stockholders and related parties at December 31, 1998 and 1997.
NOTE 9 INCOME TAXES
The Company has deferred tax assets of $96,000 and $46,000 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 $400,000 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.
15
APTA HOLDINGS, INC. (PREDECESSOR) AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 10 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.
Leases
The Company leases its office space from a company which is owned by a
stockholder. Monthly rental payments are $300 per month. Rent expense for the
years ended December 31, 1998 and 1997 was $2,700 and $-0-.
NOTE 11 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 12 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)
16
APTA HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1999 AND 1998
(UNAUDITED)
ASSETS
(Accounting
Predecessor)
1999 1998
---- ----------
Rental property, net (Notes 6 & 7) $ 3,284,454 $ 3,356,233
Cash (Note 6) 117,196 41,951
Cash held in escrow (Notes 6 & 8) 72,905 104,777
Accounts receivable 890 7,071
Notes receivable (Notes 6 & 9) 138,402 90,000
Prepaid expenses 29,631 22,586
Deferred financing costs, net (Note 6) 71,211 79,851
Organization costs, net (Note 6) -0- 2,233
----------- -----------
Total Assets $ 3,714,689 $ 3,704,702
=========== ===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Liabilities
Mortgage notes payable (Note 10) $3,373,341 $ 3,406,829
Notes payable (Note 11) 242,500 178,900
Accrued interest 41,876 34,489
Accounts payable 14,091 29,934
Accrued expenses 74,449 27,662
Security deposits payable (Note 6) 61,385 53,241
Other liabilities 8,253 -0-
----------- -----------
Total liabilities 3,815,895 3,731,055
Minority interest (Notes 4 & 6) 25,231 -0-
Commitments and contingencies
Stockholders' Deficit (Notes 1 & 3)
Investment by predecessor -0- ( 26,353)
Common stock, $.001 par value,
2,000,000 shares
Authorized, 1,000,000
shares issued and outstanding 1,000 -0-
Additional paid in capital 149,000 -0-
Accumulated deficit ( 276,437) -0-
----------- -----------
Total stockholders' deficit ( 126,437) ( 26,353)
Total Liabilities and
Stockholders' Deficit $3,714,689 $ 3,704,702
========== ===========
1
APTA HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND DEFICIT
FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND 1998
(UNAUDITED)
(Accounting
Predecessor)
1999 1998
---- ----------
Revenues
Rental real estate $ 396,554 $ 394,682
Financial services 9,282 49
----------- ------------
Total revenues 405,836 394,731
Operating Expenses
Administrative expenses 75,067 55,271
Utilities expense 51,697 48,177
Operating and maintenance 53,970 58,562
Taxes and insurance 61,317 58,591
Depreciation and amortization 54,383 51,655
----------- ------------
Total operating expenses 296,434 272,256
Operating income 109,402 122,475
Other income (expense)
Interest income 865 538
Interest expense ( 152,541) ( 148,582)
----------- ------------
Total other income (expense) ( 151,676) ( 148,044)
----------- ------------
Loss before minority interest ( 42,274) ( 25,569)
Minority interest ( 212) -0-
----------- ------------
Net loss ($ 42,486) ($ 25,569)
=========== ============
Basic net loss per share
Loss before minority interest ($ .04) ($ .01)
Minority interest -0- -0-
----------- ------------
Net loss ($ .04) ($ .01)
=========== ============
Average number of common
shares outstanding -
Basic 1,000,000 2,131,667
=========== ============
2
APTA HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND 1998
(UNAUDITED)
(Accounting
Predecessor)
1999 1998
---- ----------
Cash Flows From Operating Activities:
Net loss ($ 42,486) ($ 25,569)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Minority interest in net loss of consolidated
subsidiary 212 -0-
Depreciation and amortization expense 54,383 51,655
(Increase) decrease in:
Accounts receivable 9,639 1,669
Prepaid expenses 23,797 28,949
Cash held in escrow ( 20,106) ( 26,145)
Increase (decrease) in:
Accounts payable ( 7,754) 12,521
Accrued interest -0- ( 44,490)
Accrued expenses ( 6,305) 7,292
Other liabilities 4,681 ( 3,701)
Security deposits payable 4,978 ( 2,243)
------------ -----------
Net cash provided by (used in)
operating activities 21,039 ( 62)
------------ -----------
Cash Flows From Investing Activities:
Purchases of property and equipment ( 11,164) ( 26,865)
Cash received from acquisition -0- 7,637
Cash received from predecessor 85,100 -0-
Collection of installment notes receivable 10,494 5,000
Loans made ( 75,543 -0-
Organizational costs -0- ( 1,000)
------------ -----------
Net cash provided by (used in)
investing activities 8,887 ( 15,228)
------------ -----------
Cash Flows from Financing Activities:
Repayment of mortgage notes payable ( 17,088) ( 15,739)
Repayment of short-term notes ( 53,900) ( 26,100)
Proceeds from notes payable 62,500 13,000
Contribution from predecessor -0- 25,000
Minority interest 15,000 -0-
------------ -----------
Net cash provided by (used in)
financing activities 6,512 ( 3,839)
------------ -----------
3
APTA HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND 1998
(UNAUDITED)
(Accounting
Predecessor)
1999 1998
---- ----------
Increase in cash 36,438 ( 19,129)
Cash, beginning 80,758 61,080
--------- ----------
Cash, ending $ 117,196 $ 41,951
========= ==========
SUPPLEMENTARY DISCLOSURE OF CASH FLOW INFORMATION:
1999 1998
---- ----
Cash paid for interest $ 152,541 $ 141,290
=========== ===========
Cash paid for income taxes $ 400 $ 200
=========== ===========
Non-cash investing and financing activities:
On June 28, 1999, assets and liabilities of ARCA Corp. were transferred to
the Company as follows:
Accrued expenses $ 55,100
Notes payable 30,000
-----------
Cash received from predecessor $ 85,100
===========
During the six months ended June 30, 1998, the Company acquired S&P
Custom Homes, Inc. through a subsidiary as follows:
Contribution from predecessor 100,000
Notes receivable ( 95,000)
Other current assets ( 963)
Accrued expenses 3,600
------------
Cash received from acquisition $ 7,637
============
4
ARCA CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT
FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND 1998
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Investment Additional Total
By Common Stock Paid-in Accumulated Stockholders'
Predecessor Shares Amount Capital Deficit Deficit
------------ -------- -------- --------- ---------- -----------
Balance, January 1, 1998 $(125,784) 0 $ 0 $ 0 $ 0 $(125,784)
Contribution from
predecessor 125,000 0 0 0 0 125,000
Net loss (25,569) 0 0 0 0 ( 25,569)
----------- --------- --------- --------- ---------- -----------
Balance, June 30, 1998 $( 26,353) 0 0 0 0 ( 26,353)
============ ========= ========= ========= ========== ===========
Balance, January 1, 1999 $( 83,951) 0 $ 0 $ 0 $ 0 $( 83,951)
Net loss prior to
spin-off (42,496) 0 0 0 0 (42,486)
Initial capitalization
resulting from spin-off 126,437 1,000,000 1,000 149,000 (276,437) 0
Net loss subsequent to spin-off 0 0 0 0 0 0
----------- --------- --------- --------- ---------- -----------
Balance, June 30, 1999 $ 0 1,000,000 1,000 149,000 (276,437) ( 126,437)
============ ========= ========= ========= ========== ===========
</TABLE>
5
APTA HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999 AND 1998
(UNAUDITED)
Note 1 - Organization
APTA Holdings, Inc. ("APTA"), a Delaware corporation, ("the Company")
was formed on June 4, 1999, as a subsidiary of ARCA Corp. ("ARCA"), a New
Jersey corporation, in connection with a transaction in which ARCA was merged
into Agate Technologies, Inc. ("Agate") on June 28, 1999. Immediately prior
to the closing of the merger, ARCA transferred all of its assets and
liabilities to APTA. On June 28, 1999, the common stock of APTA was spun off
to the common shareholders of ARCA. Eligible ARCA shareholders of record on
June 28, 1999 ("Dividend Record Date") received one share of APTA's common
stock for each share of ARCA's common stock held on the Dividend Record Date.
On June 28, 1999, 1,000,000 shares of $.001 par value APTA common stock was
issued to eligible ARCA shareholders.
Note 2 - Unaudited Financial Statements
The consolidated balance sheet as of June 30, 1999 and 1998 and the
related consolidated statements of operations, cash flows and stockholders'
deficit for the six months ended June 30, 1999 and 1998, 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.
Note 3 - Basis of Presentation
The consolidated financial statements for periods prior to the spin off
include only those assets and liabilities contributed by ARCA as described
above. These financial statements have been prepared using ARCA's historical
basis of the assets and liabilities and the historical results of operations
and have been prepared in accordance with the rules and regulations of the
Securities and Exchange Commission applicable for subsidiaries which have
been spun off. These rules stipulated that statements shall be prepared as
if the entity had existed prior to the existence of the new company. Such
statements are not those of a real entity, but describe a hypothetical
"accounting predecessor" to APTA Holdings, Inc. The financial statements
presented include all the operations of the Company as well as the operations
of the Company's predecessor prior to the spin-off, and have been accounted
for in a manner similar to that in a pooling of interests.
6
APTA HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999 AND 1998
(UNAUDITED)
Note 3 - Basis of Presentation (continued)
In management's opinion, the accompanying consolidated financial
statements include all common and corporate level expenses which would have
been incurred on behalf of the accounting predecessor by ARCA. Management has
allocated such expenses based on its best estimate of the actual time and
effort expended for the benefit of APTA, and believes such allocation to be
reasonable.
Net loss per Share
Net loss per share has been computed giving effect to the distribution
ratio of 1 common share of APTA for each common share of ARCA. Accordingly,
weighted average common shares outstanding, have been computed based on the
shares outstanding of ARCA for the respective period. Calculated earnings
per share may not be representative of earnings per share subsequent to the
transfer of the assets and liabilities from ARCA since the level of other
expenses incurred by APTA may be higher than was incurred on a historical
basis.
Note 4 -Nature of Operations
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 an 80% and 91% owned subsidiary of the Company as of June
30, 1999 and June 30, 1998, respectively.
Note 5 - 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,
7
APTA HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999 AND 1998
(UNAUDITED)
Note 5 - Business Acquisition (continued)
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 $100,000 increase in the
net assets of the Company representing the historical basis of the assets and
liabilities merged from S&P. The merger has been accounted for in a manner
similar to that of a pooling of interests, and accordingly, financial
information for periods prior to the merger reflect retroactive restatement
of the combined financial position and operating results of Beran and S&P
with no change in the historical basis of the assets and liabilities merged.
Net revenues, loss before extraordinary item and minority interest, and net
loss of Beran and S&P prior to the merger were immaterial. There were no
intercompany transactions between the companies prior to the merger.
Note 6 - Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of APTA
Holdings, Inc., its wholly owned subsidiary, Spring Village Holdings, Inc.
and its 80% and 91% owned subsidiary, Beran Corp. at June 30, 1999 and 1998,
respectively. 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.
8
APTA HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999 AND 1998
(UNAUDITED)
Note 6 - Summary of Significant Accounting Policies (continued)
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.
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
9
APTA HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999 AND 1998
(UNAUDITED)
Note 6 - Summary of Significant Accounting Policies (continued)
Cash Held in Escrow
Cash held in escrow includes amounts held by the lender to provide
funds necessary for the payment of taxes, 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 six months ended June 30, 1999 and
1998 was $4,320 and $4,320. Accumulated amortization as of June 30, 1999 and
1998 was $15,120 and $6,480.
Organization Costs
Organization costs were amortized on a straight-line basis over five
years. Amortization expense for the six months ended June 30, 1999 and 1998
was $-0- and $267. Accumulated amortization as of June 30, 1999 and 1998 was
$3,500 and $2,767.
Security Deposits Payable
Security deposits payable represent amounts received from tenants and
are included in cash on the accompanying balance sheet. As of June 30, 1999
and 1998, 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
six months ended June 30, 1999 and 1998 was $8,121 and $2,320.
10
APTA HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999 AND 1998
(UNAUDITED)
Note 6 - Summary of Significant Accounting Policies (continued)
Income Taxes
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes."
Under the liability method prescribed by SFAS No. 109, a deferred asset or
liability is determined based on differences between the financial statement
and tax basis of assets and liabilities as measured by the enacted tax rates
which will be in effect when these differences reverse. Tax credits are
recorded as a reduction in income taxes. Valuation allowances are provided
if, it is more likely than not, that some or all of the deferred tax assets
will not be realized.
Net Loss Per Share
The Company accounts for earnings per share in accordance with SFAS No.
128, "Earnings Per Share". SFAS No. 128, which simplifies the standards for
computing and presenting earnings per share, replaces the previously reported
primary and fully diluted earnings per share with basis and diluted earnings
per share. Unlike primary earnings per share, basic earnings per share
excludes any dilutive effects of options, warrants, and convertible
securities. Dilutive earnings per share is very similar to the previously
reported primary earnings per share.
Basic net earnings per share is computed using the weighted average number of
common shares outstanding. The Company had no potential common shares at
June 30, 1999 and 1998. The computations of basic net earnings per share are
as follows:
1999 1998
---- ----
Net loss before minority interest ($ 42,274) ($ 25,569)
============== =============
Basic weighted average shares 1,000,000 2,131,667
============== =============
Net loss per share before minority interest ($ .04) ($ .01)
============== =============
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
11
APTA HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999 AND 1998
(UNAUDITED)
Note 6 - Summary of Significant Accounting Policies (continued)
Fair Value
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.
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 six
months ended June 30, 1999 and 1998.
Note 7 - Rental Property
Rental property at June 30, 1999 and 1998 consisted of the following:
1999 1998
---- ----
Land $ 292,792 $ 292,792
Building and improvements 3,193,401 3,178,805
Building equipment 103,048 97,065
Office equipment 17,216 10,456
Furniture and fixtures 3,516 2,110
---------- ----------
3,609,973 3,581,228
Less accumulated depreciation ( 325,519) ( 224,995)
Rental property, net $3,284,454 $3,356,233
Depreciation expense for the six months ended June 30, 1999 and 1998
was $50,063 and $47,068.
12
APTA HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999 AND 1998
(UNAUDITED)
Note 8 - Cash Held in Escrow
Cash held in escrow at June 30, 1999 and 1998 consisted of the
following:
1999 1998
---- ----
Mortgage escrow deposits $ 53,895 $ 79,557
Reserve fund for replacements 9,109 10,029
Specified work escrow 9,901 15,191
---------- ---------
$ 72,905 $ 104,777
========== =========
Note 9 - Notes receivable
Notes receivable at June 30, 1999 and 1998 consist of the following:
1999 1998
---- ----
Mortgage notes receivable from company
owned by minority stockholders bearing
interest at 12%, secured by related real
estate, repaid in 1998 $ -0- $ 90,000
Installment notes receivable in monthly payments
ranging from $180 to $440 including interest
at 25% through June 2002, secured by related
vehicles 84,156 -0-
Installment note receivable from a related party
in monthly payments of $760 including
interest at 12% through December 2004,
secured by equipment 41,621 -0-
Installment note receivable from minority
stockholder in monthly payments of $125,
representing interest only at 12%, due
December 31, 1999, unsecured 12,625 -0-
---------- ----------
$ 138,402 $ 90,000
13
APTA HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999 AND 1998
(UNAUDITED)
Note 10 - Mortgage Notes Payable
Mortgage notes payable at June 30, 1999 and 1998 consisted of the
following:
1999 1998
---- ----
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 $2,462,677 $2,485,647
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 910,664 921,182
---------- ---------
$3,373,341 $3,406,829
========== ==========
Maturities of mortgage notes payable as of June 30, 1999 are as follows:
June 30, 2000 $ 36,359
June 30, 2001 39,478
June 30, 2002 42,866
June 30, 2003 46,548
June 30, 2004 50,548
Thereafter 3,157,542
----------
$ 3,373,341
===========
14
APTA HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999 AND 1998
(UNAUDITED)
Note 11 - Notes Payable
Notes payable at June 30, 1999 and 1998 consists of the following:
1999 1998
Note payable to stockholder with interest at 12%
due on demand, unsecured $ 17,500 $ -0-
Note payable to related parties with interest at
12%, due on demand, unsecured 75,000 28,900
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 150,000 150,000
--------- ---------
$ 242,500 $ 178,900
Note 12 - Income Taxes
The Company has deferred tax assets of $106,000 and $91,000 at June 30,
1999 and 1998 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 June 30, 1999, the Company has
approximately $441,000 of net operating loss carryforwards to offset future
taxable income for both federal and state income tax purposes, expiring in
various years through 2019 for federal purposes and 2006 for state purposes.
Note 13 - 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 six months ended June 30, 1999 and 1998 were $22,500 and $20,501.
Included in the accrued expenses are management fees payable of $3,750
and $20,501 at June 30, 1999 and 1998.
15
APTA HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999 AND 1998
(UNAUDITED)
Note 13 - Related Party Transactions (continued)
Leases
The Company leases its office space from a company which is owned by a
stockholder. Monthly rental payments are $300 per month. Rent expense for
the six months ended June 30, 1999 and 1998 was $1,800 and $900.
16
PART III
ITEM 1. INDEX TO EXHIBITS
The following list describes the exhibits filed as part of
this registration statement on Form 10-SB:
Exhibit No. Description of Document
- ----------- -----------------------
*3.01 Articles of Incorporation of Apta Holdings, Inc.
dated June 4, 1999
*3.02 By-laws of Apta Holdings, Inc.
*10.01 Indenture, Bill of Sale and Assignment of Assets, Properties
And Business of ARCA Corp.
*10.02 Instrument of Assumption of Liabilities
*10.03 Provisional Workout Agreement
*10.04 Agreement with Resource Properties XXIII, Inc.
*10.05 Apartment Management Agreement
*11.01 Statement re: Computation of Earnings per Share
*21.1 List of Subsidiaries of Registrant
*23.01 Consent of Haefele, Flanagan & Co., P.C.
*27.01 Financial Data Schedule
*Previously filed
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934,
the registrant caused this registration statement to be signed on its behalf
by the undersigned, thereunto duly authorized.
Apta Holdings, Inc.
/s/ Harry J. Santoro
By: Harry J. Santoro, President
Date: November 12, 1999
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<PERIOD-END> JUN-30-1999
<CASH> 117,196
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<RECEIVABLES> 890
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 359,024
<PP&E> 3,615,346
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<TOTAL-LIABILITY-AND-EQUITY> 3,714,689
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<TOTAL-REVENUES> 405,836
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