U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
[X] Annual report under section 13 or 15(d) of the Securities Exchange Act
of 1934 for the fiscal year ended 12/31/99.
[ ] Transition report under section 13 or 15(d) of the Securities Exchange
Act of 1934 for the transition period from ________ to ________.
Commission File Number 0-26777
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 registered under Section 12(b) of the Act: none
Securities registered under Section 12(g) of the Act: common stock, $.001 par
value
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for
such shorter period that the registrant was required to file such reports)
and (2) has been subject to such filing requirements for the past 90 days)
[X] Yes [ ] No
Check if there is no disclosure of delinquent filers in response to Item 405
of Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-KSB or any amendment to this Form 10-KSB. [X] Yes [ ] No
State issuer's revenues for its most recent fiscal year: $839,986
The Company's common stock currently is not quoted publicly. The estimated
aggregate market value of the voting and non-voting stock held by
non-affiliates of the registrant as of December 31, 1999 was $322,345. The
market value is based upon the last sale of the Common Stock by the Company
of $.50 per share on December 31, 1999 pursuant to a private placement.
The Company had 1,084,000 shares of common stock, par value $.001 per share,
outstanding as of February 28, 2000.
Documents incorporated by reference: none
Transitional Small Business Disclosure: Yes No XX
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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.
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 $31,928 in financial services revenues for the twelve
month period ending December 31, 1999, and contributed $4,444 in net income
to consolidated results. As of December 31, 1999, Beran had $250,187 in
loans outstanding.
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 $250,187 in loans outstanding. The Company intends
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to increase the loans outstanding to $300,000 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.
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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
----------- -----------
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.
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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.
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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 12/31/99 12/31/98
------------------------- ------- -------- --------
Studio $375 - $495 $430 $405
One bedroom $475 - $625 $545 $520
Two bedroom $585 - $750 $650 $635
Annual rent increase 1999 1% - 3% 2% - 4% 2% - 4%
Average occupancy 1999 94% - 97% 93% - 98% 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.
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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 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, 1999.
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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 maintains its principal executive office in
approximately 500 square feet of leased office space at 215 West Main Street,
Maple Shade, New Jersey, 08052. Monthly rent under a month to month lease is
$450. The building is owned by Harry J. Santoro, President of the Company;
however, the Company believes the terms of the lease are at least as
favorable as terms available from non-affiliated third parties.
Item 2. Description of Property
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The Complex
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The Spring Village Apartment complex is a garden-type apartment complex
consisting of seven buildings containing 60 one-bedroom units, 49 two-bedroom
units and 15 studio units, located in Sharon Hill, Delaware County,
Pennsylvania. Construction features include brick veneer over concrete block
exterior walls, wood frame, asphalt shingle gable roofs, aluminum frame
windows and sliding patio doors. Each unit is heated by gas fired hot water
baseboard heat. All units have wall mounted air conditioners. The buildings
were built in 1966. The quality of construction and current physical
condition of the units is believed by the Company to be average. The Company
is not aware of any material adverse environmental attributes of the
property. There were seven inactive underground storage tanks formerly used
to store heating oil for the complex. The tanks were not regulated by the
State of Pennsylvania, and were removed during 1997 by a qualified
environmental engineering firm.
The current real estate tax assessment equates to a market value of
$3,378,870. The assessed value for real estate taxes is $3,378,870 (based on
a presumed value of $3,378,870) and the real estate taxes paid for 1999 were
$89,506. The tax basis as of December 31, 1999 of the Company's buildings and
equipment was $3,449,732 and $203,015 respectively, with $1,580,346 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 3. Legal Proceedings.
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There are no pending material legal proceedings to which the Company or any
of its properties is subject.
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Item 4. Submission of Matters to a Vote of Security Holders.
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None.
PART II.
Item 5. Market for Common Equity and Related Stockholder Matters.
- -------------------------------------------------------------------
Market Information. There is no public trading market for the common
stock of Apta. Apta anticipates that its common stock will be listed on the
NASD OTC Bulletin Board in the near future. 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 prior to the merger with Agate Technologies, Inc.
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.
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.
Recent Sales of Unregistered Securities
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The following information sets forth certain information for all
securities of the Company sold during the quarter ending December 31, 1999
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."
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. 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 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 December 31, 1999, 84,000 shares of the Company's common stock were
issued to four investors for the consideration of $42,000 cash. The
transaction was effected in reliance upon Rule 506 of Regulation D of the
Securities Act.
ITEM 6. 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 1999, the Company
originated $176,834 in loans, averaging $14,736 per month. Currently its
finance company subsidiary does not materially affect its operating results.
However, going forward, the Company expects that the finance company will
become an important source of operating profit.
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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.
1999 Compared To 1998
The Company reported total revenues of $839,986 in 1999, compared to $802,908
in 1998, an increase of $37,078, or 4.6%. Several factors accounted for this
increase. Rental real estate revenues increased by $11,203 to $808,058. A
small increase in average unit rents was partially offset by a small decrease
in occupancy. Tenant fees also increased. Occupancy in 1999 and 1998 was
higher than the historical norm. Occupancy decreased from 96% in 1998 to
approximately 95% in 1999. 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. Included in total revenues are
$31,928 in revenues from financial services realized by Beran Corp., the
Company's finance subsidiary which is in its early stages of development.
This was an increase of $25,875 over 1998.
Total operating expenses increased by $40,474, to $607,230. Administrative
expenses increased by $41,255 to $168,103. In 1999, 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 increased from $79,750 in 1998 to $84,488 in
1999 due primarily to an unusually mild winter in 1998. Operating and
maintenance expenses declined by $21,471, material costs and less spending on
deferred maintenance caused the decline. Taxes and insurance increased by
$8,082, reflecting higher insurance premiums and taxes. Depreciation and
amortization increased by $7,870 to $117,074.
Net interest expense increased by $13,801 to $308,101.
Net loss increased from $58,167 in 1998 to $77,234 in 1999. The Company
reported a basic net loss of ($.08) per share in 1999, compared to a basic
net loss of ($.03) per share in 1998.
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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 also increased 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.
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
- ----- ------------------------- ---------- --------------------
1995 $763,181 95 $9.74
1996 $775,730 93 $9.90
1997 $783,367 93 $10.00
1998 $797,894 96 $10.18
1999 $813,946 95 $10.39
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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, 1998 the Company had $32,719 in working capital, including
cash held in escrow for anticipated future expenses. At December 31, 1999,
the Company had a $34,066 deficit in working capital.
On December 31, 1997, the Company had $61,080 in cash. 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 year ending December 31, 1999, the Company received $131,697 in
proceeds from notes payable net of repayments, $ 42,000 from the issuance of
common stock, 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 December 31, 1999. Operations provided $41,312. The Company used
$27,358 to purchase property and equipment, made $157,233 in loans net of
dealer holdbacks and repayments, and reduced mortgage debt by $34,894. The
net increase in cash for the period was $10,524. The Company had $91,282 in
cash on December 31, 1999, exclusive of $51,581 in cash held in escrow
accounts.
The Company's balance sheet is highly leveraged. As discussed previously,
the Company plans to reduce this leverage through 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.
-13-
<PAGE>
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 at least breakeven net cash flow after all
scheduled debt service in 2000, including principal payments totaling $42,503
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
- -----------------------------
Replace appliances and equipment $ 15,000
Replace soffits and fascia, painting 4,000
Grounds, landscaping, etc. 5,000
--------
Total $ 24,000
All of the above capital expenditures are funded on an ongoing basis by
scheduled additions to and withdrawals from escrow accounts held by the first
mortgage holder.
Selected Financial Data
- ------------------------
The following selected financial data has been derived from the Company's
financial statements included elsewhere in this Form 10-SB, and should be
read in conjunction with the financial statements and notes thereto.
Statement of Operations Data
Predecessor
-----------
12/31/99 12/31/98
-------- --------
Total Revenues $839,986 $802,908
Operating Expenses 607,230 566,756
Operating income 232,756 236,152
Other - net interest expense (308,101) (294,300)
Loss before minority interest (75,345) (58,148)
Minority Interest ( 889) (19)
Net income (loss) $(76,234) $(58,167)
Basic net (loss) per share ($ .08) ($.03)
-14-
<PAGE>
Average number of
shares outstanding - basic 1,003,979 2,110,136
Predecessor
-----------
Balance Sheet Data 12/31/99 12/31/98
- ------------------- -------- --------
Working capital (deficit) $ (34,066) $ 32,719
Total Assets $3,799,579 $3,669,751
Total Liabilities $3,986,796 $3,743,683
Minority Interest $ 25,908 $ 10,019
Stockholders' Equity
(Deficit) $ (213,185) $ ( 83,951)
Year 2000 Readiness Disclosure
- ------------------------------
Many currently installed computer systems and software products are
coded to accept only two digit entries in the date code field. These systems
and software products will need to accept four digit entries to distinguish
21st century dates from 20th century dates. As a result, computer systems
and/or software used by many companies and governmental agencies may need to
be upgraded to comply with such Year 2000 requirements or risk system failure
or miscalculations causing disruptions of normal business activities.
Progress Report: The Company is pleased to confirm that no incident has
been reported in relation to the Y2K compliance. All systems, as planned,
have been working and are still working. However, contingency plans have
been maintained in place at the change of the millennium as a precautionary
measure in case any problem would occur as a result of Y2K.
As part of the Company's post millennium program, all systems'
operational functions are closely monitored. The Company remains confident
that it has and will continue to service its customers without interruption.
It must be stressed that the Company's products are not date sensitive.
The Company's Y2K readiness program will continue to be an ongoing
process to ward off any potential material impact on the Company and its
operations.
-15-
<PAGE>
Forward Looking Statements
- ---------------------------
The Company is making this statement in order to satisfy the "safe harbor"
provisions contained in the Private Securities Litigation Reform Act of 1995.
The foregoing discussion includes forward-looking statements relating to the
business of the Company. Forward-looking statements contained herein or in
other statements made by the Company are made based on management's
expectations and beliefs concerning future events impacting the Company and
are subject to uncertainties and factors relating to the Company's operations
and business environment, all of which are difficult to predict and many of
which are beyond the control of the Company, that could cause actual results
of the Company to differ materially from those matters expressed in or
implied by forward-looking statements. The Company believes that the
following factors, among others, could affect its future performance and
cause actual results of the Company to differ materially from those expressed
in or implied by forward-looking statements made by or on behalf of the
Company: (a) the effect of changes in interest rates; (b) the rental rate
and demand for apartment rental units; (c) fluctuations in the costs to
operate the properties owned by the Company; (d) uninsurable risks; and (e)
general economic conditions.
-16-
<PAGE>
Item 7. Financial Statements.
- -------------------------------
APTA HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
TABLE OF CONTENTS
PAGE
----
INDEPENDENT AUDITORS' REPORT..............................F-1
CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS............................F-2
CONSOLIDATED STATEMENT OF OPERATIONS...................F-3
CONSOLIDATED STATEMENT OF CHANGES IN
STOCKHOLDERS' DEFICIT..................................F-4
CONSOLIDATED STATEMENT OF CASH FLOWS ..................F-5 - F-6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.............F-7 - F-17
-17-
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
of APTA Holdings, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheets of APTA
HOLDINGS, INC. AND SUBSIDIARIES as of December 31, 1999 and 1998, and the
related consolidated statements of operations and stockholders' deficit, and
cash flows for the years then ended. These consolidated financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of APTA
HOLDINGS, INC. AND SUBSIDIARIES as of December 31, 1999 and 1998, 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
February 14, 2000
F-1
<PAGE>
APTA HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
ASSETS
1999 1998
---- ----
Rental property, net (Notes 3&4) $3,269,459 $3,323,353
Cash (Note 3) 91,282 80,758
Cash held in escrow (Notes 3&5) 51,581 52,799
Accounts receivable 12,986 10,529
Notes receivable (Notes 3&6) 250,187 73,353
Prepaid expenses 57,133 53,428
Deferred financing costs, net (Note 3) 66,891 75,531
---------- ----------
TOTAL ASSETS $3,799,519 $3,669,751
========== ==========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Liabilities
Mortgage notes payable (Note 7) $3,355,535 $3,390,429
Notes payable (Note 8) 362,799 203,900
Accrued interest 41,635 41,876
Accounts payable 17,270 21,845
Accrued expenses (Note 11) 117,273 25,655
Security deposits payable (Note 3) 69,284 56,407
Dealer holdbacks (Note 3) 18,751 0
Other liabilities 4,269 3,571
---------- ----------
TOTAL LIABILITIES 3,986,796 3,743,683
Minority Interest (Notes 2&3) 25,908 10,019
Commitments and Contingencies (Note 11)
Stockholders' Deficit (Notes 1 & 11)
Common stock, $.001 par value
2,000,000 shares authorized,
1,084,000 and -0- shares issued
and outstanding in 1999 and 1998 1,084 -0-
Additional paid in capital 95,916 -0-
Accumulated deficit (310,185) ( 83,951)
--------- ---------
Total stockholders' deficit (213,185) (83,951)
--------- ---------
TOTAL LIABILITIES AND
STOCKHOLDERS' DEFICIT $3,799,519 $3,669,751
========== ==========
The accompanying notes are an integral part of these consolidated financial
statements. Specific reference is made to Note 1 where the basis of presentation
for these statements is described.
F-2
<PAGE>
APTA HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
1999 1998
---- ----
Revenues
Rental real estate $808,058 $796,855
Financial Services 31,928 6,053
-------- -------
TOTAL REVENUES 839,986 802,908
Operating expenses
Administrative expenses 168,103 126,848
Utilities expense 84,488 79,750
Operating and maintenance 112,717 134,188
Taxes and insurance 124,848 116,766
Depreciation and amortization 117,074 109,204
-------- --------
TOTAL OPERATING EXPENSES 607,230 566,756
-------- --------
Operating income 232,756 236,152
Other income (expense)
Interest income 1,993 1,967
Interest expense (310,094) (296,267)
--------- --------
Total other income (expense) (308,101) (294,300)
--------- --------
Loss before minority interest (75,345) (58,148)
Minority interest ( 889) ( 19)
-------- --------
Net loss ($76,234) ($58,167)
========= =========
Basic net loss per share
Loss before minority interest ($.08) ($.03)
Minority interest -0- -0-
--------- --------
Net loss ($.08) ($.03)
========= =========
Average number of common
shares outstanding - basic 1,003,979 2,110,136
========= =========
The accompanying notes are an integral part of these consolidated financial
statements. Specific reference is made to Note 1 where the basis of presentation
for these statements is described.
F-3
<PAGE>
APTA HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIT
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
Investment Additional Total
By Common Stock Paid-in Accumulated Stockholder's
Predecessor Shares Amount Capital Deficit Deficit
----------- ----------------- -------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Balance,
01/01/98 $(125,784) 0 $ 0 $ 0 $ 0 $ (125,784)
Contribution
from
Predecessor
(Note 2) 100,000 0 0 0 0 100,000
Net loss (58,167) 0 0 0 0 (58,167)
------------ --------- ----- -------- ----------- -------
Balance
01/01/99 $( 83,951) 0 $ 0 $ 0 $ 0 $( 83,951)
Net loss
prior to
spin-off ( 42,486) 0 $ 0 $ 0 $ 0 $( 42,486)
Initial
capitali-
zation
resulting
from
spin-off
(Notes 1&11) 126,437 1,000,000 1,000 54,000 (276,437) (95,000)
Issuance of
common stock 0 84,000 84 41,916 0 42,000
Net loss
subsequent to
spin-off 0 0 0 0 (33,748) ( 33,748)
------------ --------- ----- -------- ----------- -------
Balance
12/31/99 $ 0 1,084,000 $1,084 $ 95,916 ($310,185) $(213,185)
============ ========= ===== ======== =========== =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements. Specific reference is made to Note 1 where the basis of
presentation for these statements is described.
F-4
<PAGE>
APTA HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
1999 1998
---- ----
Cash flows from operating activities
Net loss ($76,234) ($58,167)
Adjustments to reconcile net loss
to net cash provided by
operating activities:
Minority interest in net loss of
consolidated subsidiary 889 19
Depreciation and amortization expense 117,074 109,204
(Increase) decrease in:
Accounts receivable ( 2,457) (1,789)
Prepaid expenses ( 3,705) ( 930)
Cash held in escrow 1,218 24,870
Other current assets ( 850) 0
Increase (decrease) in:
Accounts payable (4,575) 4,432
Accrued interest ( 241) 14,679
Accrued expenses ( 3,382) (46,497)
Other liabilities 698 ( 130)
Security deposits payable 12,877 923
-------- ---------
Net cash provided by
operating activities 41,312 46,614
-------- ---------
Cash flows from investing activities:
Purchases of property and equipment (27,358) (45,981)
Cash received from predecessor 85,100 -0-
Cash received from acquisition -0- 7,637
Collection of installment notes receivable 105,109 114,981
Loans made (262,342) (93,334)
------- -------
Net cash used in investing activities ( 99,491) (16,697)
Cash flows from financing activities
Repayment of mortgage notes payable (34,894) (32,139)
Proceeds from notes payable 146,250 11,900
Repayment on notes payable (14,553) 0
Repayment of predecessor liabilities (85,100) 0
Minority interest 15,000 10,000
Issuance of common stock 42,000 0
------- -------
Net cash provided by (used in)
financing activities 68,703 (10,239)
Increase in cash 10,524 19,678
Cash, beginning 80,758 61,080
------- -------
Cash, ending $91,282 $80,758
======= =======
F-5
<PAGE>
APTA HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
1999 1998
---- ----
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
1999 1998
---- ----
Cash paid for interest $311,995 $281,588
======== ========
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
=======
In connection with the stock dividend issued to the eligible ARCA Corp.
shareholders on June 28, 1999 (See Note 1), the Company has recorded accrued
expenses totaling $95,000 related to the potential future common stock issuances
in the amount of 180,000 shares of APTA's common stock at $.50 per share. (See
Note 11).
During the year ended December 31, 1999, the Company made loans of $262,342,
which were net of dealer holdbacks of $18,751.
1999 1998
---- ----
Purchases of property and equipment $ 54,540 $ 45,981
Debt incurred ( 27,182) 0
------------- ------------
Cash paid for property and equipment $ 27,358 $ 45,981
============= ============
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
=======
The accompanying notes are an integral part of these consolidated financial
statements. Specific reference is made to Note 1 where the basis of presentation
for these statements is described.
F-6
<PAGE>
APTA HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
Note 1 - Organization and Basis of Presentation
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 29, 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 were issued to
eligible ARCA shareholders.
The consolidated financial statements for the 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 of 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 of a pooling of interests.
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 actual time and effort expended for the
benefit of APTA, and believes such allocation to be reasonable.
Note 2 -Nature of Operations
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.
F-7
<PAGE>
APTA HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
Note 2 -Nature of Operations (continued)
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% 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., its wholly owned subsidiary, Spring Village Holdings, Inc. and
its 80% 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.
F-8
<PAGE>
APTA HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
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.
F-9
<PAGE>
APTA HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
Note 3 - Summary of Significant Accounting Policies (continued)
Dealer Holdbacks
Dealer holdbacks are the amounts payable to member dealers from the
acceptance of retail installment contracts. The dealer holdbacks protect the
Company from potential losses associated with the installment contracts. The
dealer holdbacks are not paid until all advances related to a particular dealer
have been recovered. At December 31, 1999 and 1998, the dealer holdbacks were
$18,751 and $ -0-.
Rental Property
Rental property is recorded at cost. Depreciation is provided using the
straight-line method over its estimated useful life. 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, transportation equipment - 5
years, furniture and fixtures - 3 years. 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 Company reviews the carrying value of the rental property for
impairment whenever events and circumstances indicate that the carrying value
of an asset may not be recoverable from the estimated future cash flows expected
to result from its use and eventual disposition. In cases where undiscounted
expected cash flows are less than the carrying value, an impairment loss is
recognized equal to an amount by which the carrying value exceeds the fair value
of assets. Based on these reviews, there were no adjustments to the carrying
value of long-lived assets for the years ended December 31, 1999 and 1998.
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, 1999 and 1998 was
$8,640 and $8,640. Accumulated amortization as of December 31, 1999 and 1998
was $19,440 and $10,800.
F-10
<PAGE>
APTA HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
Note 3 - Summary of Significant Accounting Policies (continued)
Organization Costs
Organization costs were amortized on a straight-line basis over five years.
Amortization expense for the years ended December 31, 1999 and 1998 was $-0- and
$1,500. Accumulated amortization as of December 31, 1999 and 1998 was $2,500
and $2,500.
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, 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
years ended December 31, 1999 and 1998 was $15,056 and $10,493.
Income Taxes
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes."
Under the liability method prescribed by SFAS No. 109, a deferred tax asset or
liability is determined based on differences between the financial statement and
tax basis of assets and liabilities as measured by the enacted tax rates which
will be in effect when these differences reverse. Tax credits are recorded as
a reduction in income taxes. Valuation allowances are provided if, it is more
likely than not, that some or all of the deferred tax assets will not be
realized.
Net Loss Per Share
Basic net loss per share is computed on the basis of the weighted average
number of shares outstanding each period and excludes any dilutive effects of
options, warrants, and convertible securities. Dilutive earnings per share is
computed giving effects to dilutive stock equivalents. The Company had no
potential common shares at December 31, 1999 and 1998.
F-11
<PAGE>
APTA HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
Note 3 - Summary of Significant Accounting Policies (continued)
Net Loss Per Share (continued)
Net loss per share prior to the spin-off has been computed giving effect
to the distribution ratio of 1 common share of APTA common stock for each common
share of ARCA. Accordingly, weighted average common shares outstanding for the
accounting predecessor, have been computed based on the shares outstanding of
ARCA for the respective period. Calculated earnings per share may not be
representative of earnings per share subsequent to the transfer of the assets
and liabilities from ARCA since the level of other expenses incurred by APTA may
be higher than was incurred on a historical basis.
The computations of basic net earnings per share are as follows:
1999 1998
---- ----
Net loss before minority interest ($ 75,345) ($ 58,148)
=========== ===========
Basic weighted average shares 1,003,979 2,110,136
=========== ===========
Net loss per share before minority interest ($ .08) ($ .03)
=========== ===========
Fair Value
The Company's financial instruments consist primarily of cash, accounts and
installment notes receivable, accounts payable, accrued expenses and debt. The
carrying amounts of the Company's financial instruments, excluding installment
notes receivable and debt, approximate fair value due to the short maturity of
these instruments. The Company's notes receivable approximate fair value based
on interest rates currently being offered for loans with similar terms to
borrowers of similar credit quality. The Company's debt approximates fair value
based on borrowing rates currently available to the Company.
Statement of Cash Flows
For purposes of the statements of cash flows, the Company considers all
highly liquid investments purchased with a term to maturity of three (3) months
or less at the time of acquisition to be cash equivalents.
F-12
<PAGE>
APTA HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
Note 3 - Summary of Significant Accounting Policies (continued)
New Accounting Pronouncement
In 1998, the Company adopted SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information." SFAS No. 131 redefines how operating
segments are determined and requires qualitative disclosure of certain financial
and descriptive information about a company's operating segments. Application
of the disclosure requirements under this standard did not have a material
impact on the Company's financial statements for the years ended December 31,
1999 and 1998 since the Company's financing segment's operations were
immaterial.
Note 4 - Rental Property
Rental property at December 31, 1999 and 1998 consisted of the following:
1999 1998
---- ----
Land $ 292,792 $ 292,792
Building and improvements 3,186,821 3,176,945
Building equipment 108,082 98,709
Office equipment 35,328 32,220
Transportation equipment 32,182 0
Furniture and fixtures 3,516 3,516
--------- ---------
3,658,721 3,604,182
Less accumulated depreciation ( 389,262) ( 280,829)
--------- ---------
Rental property, net $3,269,459 $3,323,353
========== ==========
Depreciation expense for the years ended December 31, 1999 and 1998 was
$108,433 and $99,064.
Note 5 - Cash Held in Escrow
Cash held in escrow at December 31, 1999 and 1998 consisted of the following:
1999 1998
---- ----
Mortgage escrow deposits $ 39,127 $ 38,628
Reserve fund for replacements 10,496 12,121
Insurance escrow 1,958 2,050
--------- ---------
$ 51,581 $ 52,799
========= =========
F-13
<PAGE>
APTA HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
Note 6 - Notes receivable
Notes receivable at December 31, 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, collected in 1999 $ 0 $ 29,409
Installment notes receivable in monthly
payments including interest at 25% over
an average initial term of 30 months,
secured by related vehicles financed,
and guarantee of minority stockholder 171,278 0
Installment note receivable from a related party
in monthly payments of $760 including
interest at 12% through December 2004,
secured by equipment 36,769 38,908
Installment note receivable from minority
stockholder in monthly payments of $237
including interest at 12% through January 2001,
unsecured 42,140 5,036
--------- ----------
$ 250,187 $ 73,353
=========== ===========
Interest income from related parties in 1999 and 1998 was $7,192 and
$5,741.
Note 7 - Mortgage Notes Payable
Mortgage notes payable at December 31, 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
$2,450,506 $2,474,384
F-14
<PAGE>
APTA HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
Note 7 - Mortgage Notes Payable (continued)
1999 1998
---- ----
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 905,029 916,045
---------- ---------
$3,355,535 $3,390,429
========== ==========
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.
Maturities of mortgage notes payable as of December 31, 1999 are as follows:
2000 $ 37,886
2001 41,136
2002 44,669
2003 48,506
2004 52,676
Thereafter 3,130,662
-------------
$ 3,355,535
=============
Note 8 - Notes Payable
Notes payable at December 31, 1999 and 1998 consists of the following:
1999 1998
---- ----
Notes payable to stockholders with interest at 12%
And 10% in 1999 and 1998, due on demand, $ 86,250 $ 0
unsecured
Note payable to related parties with interest at
12%, due on demand, unsecured 100,000 53,900
F-15
<PAGE>
APTA HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
Note 8 - Notes Payable (continued)
1999 1998
---- ----
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
January 1, 2002, unsecured 150,000 150,000
Note payable to bank in monthly payments of $563
including interest at 8.75%, due October 2004,
secured by transportation equipment 26,529 0
-------- -------
$ 362,779 $ 203,900
========== =========
Maturities of note payable to bank at December 31, 1999 are as follows:
2000 $ 4,617
2001 5,038
2002 5,496
2003 5,997
2004 5,381
------------
$ 26,529
============
Interest expense payable to stockholders and related parties in 1999 and
1998 was $29,885 and $17,500. Accrued interest of $18,750 was payable to
stockholders and related parties at December 31, 1999 and 1998.
Note 9 - Income Taxes
The Company has deferred tax assets of $119,000 and $96,000 at December 31,
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 year. At December 31, 1999, the Company has
approximately $500,000 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.
F-16
<PAGE>
APTA HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
Note 10 - Related Party Transactions
Management Fees
A company, which is owned by a stockholder, provides certain management and
administrative services to the Companies. Management fees for the years ended
December 31, 1999 and 1998 were $58,300 and $39,874. Included in accrued
expenses are management fees payable of $3,750 and $3,493 at December 31, 1999
and 1998.
Leases
The Company leases its office space from a company which is owned by a
stockholder. Monthly rental payments are $450 per month. Rent expense for the
years ended December 31, 1999 and 1998 was $4,500 and $2,700.
Note 11 - Commitments and Contingencies
In January 2000, the Company was notified by the NASD that the stock
dividend of the APTA common shares made to the shareholders of Agate
Technologies, Inc. ("Agate"), formerly ARCA Corp., on June 28, 1999 was not
deemed to be effective by the NASD until the Securities and Exchange Commission
had completed its review of the Form 10 Registration Statement filed by APTA.
Although it was the intention of ARCA to complete the stock dividend on June 28,
1999, the determination by the NASD delayed the dividend record date until
November 30, 1999, and the ex-dividend date to January 12, 2000. Accordingly,
shareholders who believed that the Agate shares were ex-dividend on June 28,
1999, and who sold Agate shares between November 30, 1999 and January 12, 2000,
unknowingly sold their APTA shares, as well. As a result the Company has
established a trust to hold 180,000 shares of Apta stock for its potential
issuance. The Company has accrued $95,000 as of June 28, 1999, representing the
potential liability relating to these shares at $.50 per share, plus $5,000
payable to the trustee.
F-17
<PAGE>
Item 8. Changes In and Disagreements With Accountants on
Accounting and Financial Disclosure
- -----------------------------------------------------------
None.
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act
- -----------------------------------------------------------------------
The following table sets forth information with respect to the executive
officers, key personnel, directors and nominees to become directors of the
Company:
Age Title
---- ------
Harry J. Santoro, CPA 47 President, Treasurer and
Director
Stephen M. Robinson, Esq. 57 Vice President, Secretary
and Director
Harry J. Santoro. Mr. Santoro is 47 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 an office at 172 Tuckerton Road, Medford, New Jersey where he continues
his securities practice.
-18-
<PAGE>
All directors hold office until the next annual meeting of stockholders or the
election and qualification of their successors. Directors of the Company do not
receive any compensation for their services as members of the Board of
Directors, but are entitled to reimbursement for expenses incurred in connection
with their attendance at Board of Directors' meetings. Officers are appointed
by the Board of Directors and serve at the discretion of the Board.
ITEM 10. EXECUTIVE COMPENSATION.
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 Stock Other Annual
Principal Position Year Salary Options Bonus Compensation
- ------------------- ---- ------ ------- ------ ------------
Harry J. Santoro, 1997 $25,000 0 0 $37,197 (1)
President, Treasurer 1998 0 0 0 $39,874 (1)
1999 0 0 0 $58,300 (1)
Stephen M. Robinson, 1997 $50,000 0 0 $15,488 (2)
VP, Secretary 1998 0 0 0 25,660 (2)
1999 0 0 0 0
- -----------------
(1) Includes fees payable to H. James Santoro, Inc. as property manager of the
Spring Village Apartments and for administrative services rendered.
(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 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as of December 31, 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.
-19-
<PAGE>
# 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 295,670<F2> 27.3%
Harry J. Santoro
215 West Main Street
Maple Shade, NJ 08052 143,640<F3> 13.3%
All Directors and
Officers as a
group (2 persons) 552,510 40.6%
- -----------------
[FN]
<F1>
Under the rules of the Commission, a person is deemed to be the beneficial
owner of a security if such person has or shares the power to vote or direct
the voting of such security or the power to dispose or direct the disposition
of such security. A person is also deemed to be a beneficial owner of any
securities of that person has the right to acquire beneficial ownership within
60 days. Accordingly, more than one person may be deemed to be a beneficial
owner of the same securities. Unless otherwise indicated by footnote, the
named entities or individuals have sole voting and investment power with
respect to the shares of common stock beneficially owned.
<F2>
Includes 45,000 shares held by Theodora T. Robinson, wife of Stephen M.
Robinson.
<F3>
Includes 45,000 shares held by Donna M. Santoro, wife of Harry J. Santoro, and
37,500 shares held by H. James Santoro, Inc., a company controlled by Harry J.
Santoro.
</FN>
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED 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, as modified, is currently in effect,
and may be terminated 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 1999 and 1998, respectively, $45,000 and $39,874,
pursuant to such agreement. Mr. Santoro owns 100% of H. James Santoro, Inc.
-20-
<PAGE>
The Company currently maintains its principal executive offices with Santoro
Realty, Inc. in approximately 500 square feet of leased office space at 215
West Main Street, Maple Shade, New Jersey, 08052. Monthly rent under a month
to month lease is $450. 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.
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.
During the year ended December 31, 1998, Stephen M. Robinson, Secretary, Vice
President and a director of the Company, advanced $27,000 to the Company
pursuant to a demand promissory note which bears interest at 12% per annum.
During the year ended December 31, 1998, a company owned by Harry J. Santoro,
President, Treasurer and a director of the Company, advanced $47,500 to the
Company pursuant to a demand promissory note which bears interest at 12% per
annum.
During the year ended December 31, 1999, a company owned by Harry J. Santoro,
President, Treasurer and a director of the Company, advanced $52,500 to the
Company pursuant to a demand promissory note which bears interest at 12% per
annum.
-21-
<PAGE>
Item 13. Exhibits and Reports on Form 8-K
- ------------------------------------------
(a) Exhibits
--------
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
(b) Reports on Form 8-K
-------------------
None
- ---------
The exhibits designed above with an asterisk (*) have previously been filed
with the Commission and, pursuant to 17 C.F.R. Secs. 201.24 and 240.12b-32, are
incorporated by reference to the Registrant's Registration Statement on Form
10-SB number 0-26777, effective September 20, 1999.
-22-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
APTA HOLDINGS, INC.
(Registrant)
Date: March 29, 2000
/S/ Harry J. Santoro
-----------------------------------
Harry J. Santoro, President,
Chief Executive Officer
Pursuant to the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
APTA HOLDINGS, INC.
(Registrant)
Date: March 29, 2000
/S/ Harry J. Santoro
-------------------------------------
Harry J. Santoro, Director
/S/ Stephen M. Robinson
-------------------------------------
Stephen M. Robinson, Director
-23-
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<NAME> APTA HOLDINGS, INC.
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 91,282
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<RECEIVABLES> 12,986
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<PP&E> 3,658,721
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<TOTAL-ASSETS> 3,799,519
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<BONDS> 3,355,535
0
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<COMMON> 1,084
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