As filed with the Securities and Exchange Commission on
Registration No.
------------------------------------------------------------------------------
U.S. Securities and Exchange Commission
Washington, D.C. 20549
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
GAVELLA CORP.
(Name of Small Business Issuer in Its Charter)
Delaware 22-3742159
(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)
<PAGE>
PART I
ITEM 1. DESCRIPTION OF BUSINESS
General
--------
Gavella Corp. ("Gavella" or the "Company") was incorporated on June 21, 2000
in the State of Delaware as a wholly owned subsidiary of Apta Holdings, Inc.
("Apta"). On August 7, 2000, APTA intends to transfer all of the assets and
liabilities of its 100% wholly owned subsidiary, Spring Village Holdings, Inc.
to Gavella in exchange for 2,000,000 shares of $.001 par value Gavella common
stock. The transfer of Spring Village Holdings, Inc. to Gavella was due to a
decision by Apta's Board of Directors to separate the finance business and
the real estate business into two separate corporations. The Apta Board of
Directors has also authorized that the Apta shareholders will receive one
share of Gavella for each share of Apta owned by the shareholders. The record
date for such spin-off will be determined after the SEC and any other relevant
regulatory body has completed its review. It is anticipated that Apta will
retain approximately 20% of the Gavella shares after the spin-off.
The only asset to be acquired by Gavella is Apta's wholly owned real estate
subsidiary, Spring Village Holdings, Inc. ("Spring Village"). The following
discussion of the business of the Company includes the business of Spring
Village Holdings, Inc.
The Company is currently engaged in one line of business; owning and operating
income producing real estate.
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.
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.
Real Estate Operations
-----------------------
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
Gavella 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
--------- ------- --------
3,577,672 326,112 295,588
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
--------------------
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
------------------
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 12/31/00 12/31/99
------------------------- ------- -------- --------
Studio $375 - $495 $420 $405
One bedroom $499 - $650 $545 $520
Two bedroom $620 - $850 $640 $635
Annual rent increase 1999 1% - 6% 1% - 5% 1% - 2%
Average occupancy 1999 93% - 97% 93% - 96% 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 and March 2000 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.
Employees
----------
In addition to Harry J. Santoro, the President and Treasurer, and Stephen M.
Robinson, the Vice President and Secretary, the Company, including
subcontracts, employs five other people on a regular basis who manage and
maintain the apartment complex and perform administrative functions.
Facilities
-----------
The Company currently maintains an office in approximately 300 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 $300. 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
-----------------
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 eighty percent of a
property's value. To accomplish this, the Company plans to raise additional
capital through the sale of its securities in the future.
The Company advertises its units in local newspapers, by direct mail and
through promotional programs designed to maintain occupancy at or above 95%.
Results of Operations
----------------------
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 $808,058 in 1999, compared to $796,855
in 1998, an increase of $11,203, or 1.5%. Several factors accounted for this
increase. Occupancy decreased from 96% in 1998 to approximately 95% in 1999.
The small decrease in occupancy was more than offset by increases in unit
rents and tenant fees. 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.
Total operating expenses increased by $13,199, to $584,006. Administrative
expenses increased by $14,073 to $151,100. In 1999, there was an increase in
administrative expenses related to the operations of the apartment complex.
Utilities expenses increased from $79,750 in 1998 to $84,487 in 1999 due
primarily to an unusually mild winter in 1998. Operating and maintenance
expenses declined from $128,704 in 1998 to $112,717 in 1999. Decreases in
material costs and subcontracts caused the decline. Taxes and insurance
increased by $2,990, reflecting higher insurance premiums. Depreciation and
amortization increased by $7,386 to $115,946 as a result of recent capital
improvements being depreciated.
Interest expense increased from $297,549 in 1998 to $305,199 in 1999, due to
an increase in the total debt outstanding. The debt was incurred for property
an equipment.
Net loss increased from $70,356 in 1998 to $79,292 in 1999. The Company
reported a basic net loss of ($.04) per share in 1999, compared to a basic
net loss of ($.04) per share in 1998.
Three Months Ending March 31, 2000 Compared to March 31, 1999
The Company reported total revenues of $208,376 and $200,671 in 2000 and 1999,
respectively, an increase of $7,705 or 4%. Occupancy was approximately 95%
and 94%, respectively. The higher occupancy and a small increase in the
average unit rental rate resulted in the increase in rental revenue.
Total operating expenses increased slightly from $155,991 in 1999 to $155,998
in 2000.
Administrative expenses decreased to $38,187 in 2000 from $39,117 in 1999.
Utilities decreased by $1,697. Operating and maintenance expense decreased
from $28,200 in 1999 to $26,435 in 2000. Taxes and insurance increased by
$1,789, primarily due to expanded insurance coverage and a switch from
subcontractors to employees. Depreciation increased by $2,610 to $29,544 in
2000, reflecting recent capital improvements being depreciated. Operating
income increased from $44,680 in 1999 to $52,378 in 2000, primarily due to the
increases in total revenues discussed above.
Net interest expense increased by $676 from $75,853 in 1999 to $76,529 in
2000.
Net loss decreased from ($31,173) in 1999 to ($24,151) in 2000. Basic net
loss per share decreased from ($.02) in 1999 to ($.01) in 2000.
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
No tenant occupies more than 10% of the leased space. Substantially all
leases are for one year or less, and are for residential dwelling units. A
sixty day notice is required for termination. Substantially all of the leases
expire within one year as is typical for apartment leases.
The Company is taxed as a C-corporation for federal and state income tax
purposes. As such, the Company will pay taxes on its net income as defined by
the Internal Revenue Code. No tax attributes of the Company flow through to
the shareholders except for the regular taxation of dividends paid, if any.
Liquidity and Capital Resources
--------------------------------
At December 31, 1998 the Company had a deficit in working capital of $77,905
including cash held in escrow for anticipated future expenses. At December
31, 1998, the Company had a deficit working capital of $118,202.
On December 31, 1997, the Company had $61,080 in cash. During the year ending
December 31, 1998, the Company received $26,900 in net proceeds from short
term debt and $12,000 contributed capital. Operations provided an additional
$39,999 in cash. The Company used $42,761 to purchase property and equipment
and reduced mortgage indebtedness by $32,139. The net increase in cash for
the year was $3,999. The Company had $65,079 in cash on December 31, 1998,
exclusive of $52,799 cash held in escrow accounts.
During the year ending December 31, 1999, the Company realized $25,447 in net
proceeds from notes payable, and $12,000 in contributed capital. Operations
provided an additional $36,518. The Company used $34,894 to repay mortgage
notes payable. The Company used $26,875 to purchase property and equipment.
The net increase in cash for the year was $12,196. The Company had $77,275 in
cash on December 31, 1999, exclusive of $51,581 cash held in escrow accounts.
During the three months ending March 31, 2000, the Company received $3,883 in
proceeds from notes payable net of repayments, and $3,000 in contributed
capital. The Company used $6,754 to purchase property and equipment, and
reduced mortgage debt by $9,181. The net increase in cash for the period was
$2,747. The Company had $80,022 in cash on March 31, 2000, exclusive of
$47,328 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 2000, including principal payments totaling $37,886 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 Predecessor
------------------- ----------------
3/31/00 3/31/99 12/31/99 12/31/98
-------- -------- -------- --------
Total Revenues 208,376 200,761 808,058 796,855
Operating Expenses 232,527 231,844 887,350 867,211
Net income (loss) (24,151) (31,173) (79,292) ( 70,356)
Basic net (loss) per share ( .01) ( .02) ($.04) ( .04)
Average number of
shares outstanding - basic 2,000,000 2,000,000 2,000,000 2,000,000
Predecessor Predecessor
------------------- ----------------
Balance Sheet Data 3/31/00 3/31/99 12/31/99 12/31/98
------------------- -------- -------- -------- --------
Working capital (deficit) $(125,744) $( 88,511) $( 118,202) ($77,905)
Total Assets 3,500,288 3,527,521 3,528,864 3,574,543
Total Liabilities 3,772,871 3,739,834 3,780,296 3,758,683
Stockholders' (Deficit) $(272,583) $(212,313) (251,432) (184,140)
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.
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
$3,378,870. The assessed value for real estate taxes is $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 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
As of August 7, 2000, there will be 2,000,000 shares of common stock
outstanding, all held by Apta Holdings, Inc. The following table sets forth
the pro forma 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, after the anticipated
spin-off of Gavella shares to the Apta shareholders.
# 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 426,893<F2> 21.3%
Harry J. Santoro
215 West Main Street
Maple Shade, NJ 08052 338,164<F3> 16.9%
Apta Holdings, Inc.
215 West Main Street
Maple Shade, NJ 08052 482,000<F4> 24.1%
All Directors and
Officers as a
group (2 persons) 1,247,057<F5> 62.4%
-----------------
<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 132,500 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.
<F4>
Apta Holdings, Inc. is a corporation controlled by Harry J. Santoro and
Stephen M. Robinson, the President/Treasurer and Vice President/Secretary,
respectively, of the Company.
<F5>
Includes the shares beneficially controlled by Stephen M. Robinson and Harry
J. Santoro in Apta Holdings, Inc.
</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 47 President, Treasurer and
Director
Stephen M. Robinson, Esq. 58 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 58 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 Apta 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 $45,000 (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) *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 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.
(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 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.
The Company currently maintains its principal executive offices in
approximately 300 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 $300. 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 8. DESCRIPTION OF SECURITIES
The authorized capital stock of the Company consists of 3,000,000
shares of common stock, par value $.001 per share ("Common Stock"). There
are currently 2,000,000 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 Gavella, and no stock certificates have been distributed to
the Gavella shareholders pending notification by the SEC staff that there are
no further comments with respect to this Form 10-SB. The common stock of Apta
Corp., the Company's predecessor, was quoted on the OTC Bulletin Board under
the symbol "APTA". However, the market for Apta common stock was sporadic and
thinly traded, and the price range of the common stock was $.50 to $.625 per
share.
(b) Holders. As of August 7, 2000, there will be 2,000,000 shares of
common stock outstanding, all held by Apta Holdings, Inc. Subsequent to the
anticipated spin-off, there will be approximately 459 holders of record of
Gavella common stock. The Company estimates that there will also be at least
another 75 shareholders whose stock is held in street name.
(c) Dividends. Neither Gavella nor its predecessor Apta has declared
or paid any cash dividends on its common stock. Gavella 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. As of August 7, 2000, there will be 2,000,000 shares
of common stock outstanding, all held by Apta Holdings, Inc. Subsequent to
the anticipated spin-off, of the 2,000,000 outstanding shares, 1,247,057
shares will be held by affiliates of the Company. All but 694,500 of these
shares will have been held more than one year and are subject to the
restrictions set forth in rule 144 for shares held by affiliates. All but
305,500 of the remaining 752,943 shares will be deemed to 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
None
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.
Gavella Corp. (PREDECESSOR) AND SUBSIDIARIES
Report of Independent Accountants
Consolidated Balance Sheets as of December 31, 1999 and 1998
Consolidated Statements of Operations for the years ended December
31, 1999 and 1998
Consolidated Statements of Cash Flows for the years ended December
31, 1999 and 1998
Notes to Financial Statements
GAVELLA CORP. (PREDECESSOR) AND SUBSIDIARIES
Consolidated Balance Sheets as of March 31, 2000 and 1999 (unaudited)
Consolidated Statements of Operations for the three months ended March
31, 2000 and 1999 (unaudited)
Consolidated Statements of Cash Flows for the three months ended March
31, 2000 and 1999 (unaudited)
Notes to Financial Statements
GAVELLA CORP. (PREDECESSOR)
AND SUBSIDIARY
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
<PAGE>
GAVELLA CORP. (PREDECESSOR) AND SUBSIDIARY
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
TABLE OF CONTENTS
Page
Independent Auditors' Report 1
Consolidated Financial Statements
Consolidated Balance Sheets 2
Consolidated Statements of Operations and Deficit 3
Consolidated Statements of Cash Flows 4 - 5
Notes to Consolidated Financial Statements 6 - 13
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
of Gavella Corp. and Subsidiary
We have audited the accompanying consolidated balance sheets of GAVELLA
CORP. (PREDECESSOR) AND SUBSIDIARY as of December 31, 1999 and 1998, 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 GAVELLA
CORP. (PREDECESSOR) AND SUBSIDIARY 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
July 10, 2000
F-1
<PAGE>
GAVELLA CORP. (PREDECESSOR) AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
ASSETS
1999 1998
----------- -----------
Rental property, net (Notes 3 & 4) $ 3,267,528 $ 3,320,777
Cash (Note 3) 77,275 65,079
Cash held in escrow (Notes 3 & 5) 51,581 52,799
Accounts receivable 12,986 10,529
Prepaid expenses 52,603 49,828
Deferred financing costs, net (Note 3) 66,891 75,531
----------- -----------
Total Assets $ 3,528,864 $ 3,574,543
=========== ===========
LIABILITIES AND DEFICIT
Liabilities
Mortgage notes payable (Note 6) $3,355,535 $ 3,390,429
Notes payable (Note 7) 271,529 218,900
Accrued interest 41,636 41,876
Accounts payable 17,270 21,845
Accrued expenses 20,773 25,655
Security deposits payable (Note 3) 69,284 56,407
Other liabilities 4,269 3,571
----------- -----------
Total Liabilities 3,780,296 3,758,683
Deficit ( 251,432) ( 184,140)
----------- -----------
Total Liabilities and Deficit $3,528,864 $ 3,574,543
=========== ===========
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 financial statements is described.
F-2
<PAGE>
GAVELLA CORP. (PREDECESSOR) AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS AND DEFICIT
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
1999 1998
----------- -----------
Revenues
Rental real estate $ 808,058 $ 796,855
----------- -----------
Total revenues 808,058 796,855
Operating expenses
Administrative expenses 151,100 137,027
Utilities expense 84,487 79,750
Operating and maintenance 112,717 128,704
Taxes and insurance 119,756 116,766
Depreciation and amortization 115,946 108,560
----------- -----------
Total operating expenses 584,006 570,807
Operating income 224,052 226,048
Other income (expense)
Interest income 1,855 1,145
Interest expense ( 305,199) ( 297,549)
----------- -----------
Total other income (expense) ( 303,344) ( 296,404)
----------- -----------
Net loss ( 79,292) ( 70,356)
Accumulated deficit - beginning ( 184,140) ( 125,784)
Contributed additional capital 12,000 12,000
----------- -----------
Accumulated deficit - ending ($ 251,432) ($ 184,140)
=========== ===========
Basic net loss per share (Notes 1 and 3)
Net loss ($ .04) ($ .04)
=========== ===========
Average number of common shares outstanding -
Basic 2,000,000 2,000,000
=========== ===========
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 financial statements is described.
F-3
<PAGE>
GAVELLA CORP. (PREDECESSOR) AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
1999 1998
----------- -----------
Cash flows from operating activities:
Net loss ($ 79,292) ($ 70,356)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization expense 115,946 108,560
(Increase) decrease in:
Accounts receivable ( 2,457) ( 1,789)
Prepaid expenses ( 2,775) 1,707
Cash held in escrow 1,218 24,870
Increase (decrease) in:
Accounts payable ( 4,575) 4,432
Accrued interest ( 240) 14,679
Accrued expenses ( 4,882) ( 42,897)
Other liabilities 698 ( 130)
Security deposits payable 12,877 923
----------- -----------
Net cash provided by operating activities 36,518 39,999
----------- -----------
Cash flows from investing activities:
Purchases of property and equipment ( 26,875) ( 42,761)
----------- -----------
Net cash used in investing activities ( 26,875) ( 42,761)
----------- -----------
Cash flows from financing activities:
Repayment of mortgage notes payable ( 34,894) ( 32,139)
Proceeds from short-term debt 30,000 65,000
Payments on short-term debt ( 4,553) ( 38,100)
Contributed additional capital 12,000 12,000
----------- -----------
Net cash provided by financing activities 2,553 6,761
----------- -----------
Increase in cash 12,196 3,999
Cash, beginning 65,079 61,080
----------- -----------
Cash, ending $ 77,275 $ 65,079
SUPPLEMENTARY DISCLOSURE OF CASH FLOW INFORMATION:
1999 1998
----------- -----------
Cash paid for interest $ 305,439 $ 282,870
=========== ===========
Cash paid for income taxes $ 200 $ 200
=========== ===========
F-4
<PAGE>
GAVELLA CORP. (PREDECESSOR) AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
SUPPLEMENTARY DISCLOSURE OF CASH FLOW INFORMATION (continued):
1999 1998
----------- -----------
Non-cash investing activities:
Property and Equipment
Purchases of property and equipment $ 54,057 $ 42,761
Debt incurred ( 27,182) -0-
----------- -----------
Cash paid for purchases of
property and equipment $ 26,875 $ 42,761
----------- -----------
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 financial statements is described.
F-5
<PAGE>
GAVELLA CORP. (PREDECESSOR) AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
Note 1 - Organization and Basis of Presentation
On June 21, 2000, Gavella Corp. ("Gavella") was formed for the purpose
of effectuating a spin-off of the real estate operations of APTA Holdings,
Inc. ("APTA"). APTA is a financial services holding company. Through its
subsidiaries, Apta 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 August 7, 2000, APTA intends to transfer all of the assets and liabilities
of its 100% wholly owned subsidiary, Spring Village Holdings, Inc. to Gavella
in exchange for 2,000,000 shares of $.001 par value Gavella common stock.
The accompanying consolidated financial statements are for the periods
prior to the spin off and include only the assets and liabilities contributed
by APTA as described above. These financial statements have been prepared
using APTA'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 to be spun off. These rules stipulate 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 Gavella Corp. The financial
statements presented include 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 incurred on behalf of the
accounting predecessor by APTA. Management has allocated such expenses based
on its best estimate of actual time and effort expended for the benefit of
Gavella Corp., and believes such allocation to be reasonable. Additional
corporate overhead expenses of $12,000 per year have been allocated to Gavella
and are included in administrative expenses in the accompanying consolidated
statement of operations and deficit with the offsetting credit amount
reflected as contributed additional capital.
Net loss per Share
Net loss per share has been computed giving effect to the issuance of
2,000,000 shares of Gavella Corp. for APTA's investment in Spring Village
Holdings, Inc. Accordingly, weighted average common shares outstanding, have
been computed based on the hypothetical shares outstanding of Gavella Corp.
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 APTA since the level of other expenses incurred by
Gavella Corp. may be higher than was incurred on a historical basis.
F-6
<PAGE>
GAVELLA CORP. (PREDECESSOR) AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
Note 2 -Nature of Operations
The assets acquired by Gavella was APTA's wholly owned subsidiary, Spring
Village Holdings, Inc. The following discussion includes the business of the
subsidiary and incorporates the prior activities of APTA.
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.
Note 3 - Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of Gavella
Corp. (Predecessor), and its wholly owned subsidiary, Spring Village Holdings,
Inc. 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.
F-7
<PAGE>
GAVELLA CORP. (PREDECESSOR) AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
Note 3 - Summary of Significant Accounting Policies (continued)
Rental Property
Rental property is recorded at cost. Depreciation is provided using the
straight-line method over its estimated useful life. 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.
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.
F-8
<PAGE>
GAVELLA CORP. (PREDECESSOR) AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
Note 3 - Summary of Significant Accounting Policies (continued)
Security Deposits Payable
Security deposits payable represent amounts received from tenants and
are included in cash on the accompanying balance sheet. As of December 31,
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
periods 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 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
that 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 common 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-9
<PAGE>
GAVELLA CORP. (PREDECESSOR) AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
Note 3 - Summary of Significant Accounting Policies (continued)
Fair Value
The Company's financial instruments consist primarily of cash, accounts
receivable, accounts payable, accrued expenses and debt. The carrying amounts
of the Company's financial instruments, excluding debt, approximate fair value
due to the short maturity of these instruments. 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.
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 108,083 98,709
Office equipment 31,625 29,000
Transportation equipment 32,182 -0-
Furniture and fixtures 3,516 3,516
------------ -------------
3,655,019 3,600,962
Less accumulated depreciation ( 387,491) ( 280,185)
Rental property, net $3,267,528 $3,320,777
============ =============
Depreciation expense for the periods ended December 31, 1999 and 1998
was $107,306 and $98,420.
F-10
<PAGE>
GAVELLA CORP. (PREDECESSOR) AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
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
Specified work escrow 1,958 2,050
--------------- -------------
$ 51,581 $ 52,799
=============== =============
Note 6 - 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
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.
F-11
<PAGE>
GAVELLA CORP. (PREDECESSOR) AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
Note 6 - Mortgage Notes Payable (continued)
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 7 - Notes Payable
Notes payable at December 31, 1999 and 1998 consists of the following:
1999 1998
----------- -----------
Note payable to bank in monthly payments of
$563 including interest at 8.75%, due on
October 2004, secured by transportation equipment $ 26,529 $ -0-
Note payable to related parties with interest at
12%, due on demand, unsecured 95,000 68,900
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 (See Note 6) 150,000 150,000
----------- -----------
$ 271,529 $ 218,900
=========== ===========
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 $28,750 and $18,800. Accrued interest of $18,750 was payable to
stockholders and related parties at December 31, 1999 and 1998.
F-12
GAVELLA CORP. (PREDECESSOR) AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
Note 8 - Income Taxes
The Company has deferred tax assets of $116,000 and $96,000 at December
31, 1999 and 1998 that 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, 1999, the Company has
approximately $480,000 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 9 - Related Party Transactions
Management of Rental Property
A company, which is owned by a stockholder, provides certain management
and administrative services to the Company. Management fees for the years
ended December 31, 1999 and 1998 were $45,000 and $39,874. Included in the
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 that is owned by a
stockholder. Monthly rental payments are $150 per month. Rent expense for
the years ended December 31, 1999 and 1998 was $1,800 and $1,800.
F-13
<PAGE>
GAVELLA CORP. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
MARCH 31, 2000 AND 1999
(UNAUDITED)
ASSETS
2000 1999
Rental property, net $ 3,246,898 $ 3,296,914
Cash 80,022 55,201
Cash held in escrow 47,328 68,707
Accounts receivable 5,540 745
Prepaid expenses 55,769 32,583
Deferred financing costs, net 64,731 73,371
----------- -----------
Total Assets $ 3,500,288 $ 3,527,521
=========== ===========
LIABILITIES AND DEFICIT
Liabilities
Mortgage notes payable $3,346,354 $ 3,381,973
Notes payable 275,412 215,000
Accrued interest 41,636 41,876
Accounts payable 14,849 20,080
Accrued expenses 18,335 24,758
Security deposits payable 70,434 56,147
Other liabilities 5,851 -0-
----------- -----------
Total liabilities 3,772,871 3,739,834
Deficit ( 272,583) ( 212,313)
----------- -----------
Total Liabilities
and Deficit $3,500,288 $ 3,527,521
=========== ===========
F-14
<PAGE>
GAVELLA CORP. (PREDECESSOR) AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS AND DEFICIT
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999
(UNAUDITED)
2000 1999
----------- -----------
Revenues
Rental real estate $ 208,376 $ 200,671
----------- -----------
Total revenues 208,376 200,671
Operating Expenses
Administrative expenses 38,187 39,117
Utilities expense 30,546 32,243
Operating and maintenance 26,435 28,200
Taxes and insurance 31,286 29,497
Depreciation and amortization 29,544 26,934
----------- -----------
Total operating expenses 155,998 155,991
----------- -----------
Operating income 52,378 44,680
Other income (expense)
Interest income 652 481
Interest expense ( 77,181) ( 76,334)
----------- -----------
Total other income (expense) ( 76,529) ( 75,853)
----------- -----------
Net loss ( 24,151) ( 31,173)
Accumulated deficit - beginning ( 251,432) ( 184,140)
Contributed additional capital 3,000 3,000
----------- -----------
Accumulated deficit - ending ($ 272,583) ($ 212,313)
=========== ===========
Basic net loss per share ($ .01) ($ .02)
=========== ===========
Average number of common
shares outstanding -
Basic 2,000,000 2,000,000
=========== ===========
F-15
GAVELLA CORP. (PREDECESSOR) AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999
(UNAUDITED)
2000 1999
----------- ----------
Cash Flows From Operating Activities:
Net loss ($ 24,151) ($ 31,173)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization expense 29,544 26,934
(Increase) decrease in:
Accounts receivable 7,446 9,784
Prepaid expenses ( 3,166) 17,245
Cash held in escrow 4,253 ( 15,908)
Increase (decrease) in:
Accounts payable ( 2,421) ( 1,765)
Accrued expenses ( 2,438) ( 897)
Other liabilities 1,582 ( 3,571)
Security deposits payable 1,150 ( 260)
----------- ----------
Net cash provided by operating activities 11,799 389
Cash Flows From Investing Activities:
Purchases of property and equipment ( 6,754) ( 911)
----------- ----------
Net cash used in investing activities ( 6,754) ( 911)
----------- ----------
Cash Flows from Financing Activities:
Repayment of mortgage notes payable ( 9,181) ( 8,456)
Repayment of short-term notes ( 1,117) ( 3,900)
Proceeds from notes payable 5,000 -0-
Contributed additional capital 3,000 3,000
----------- ----------
Net cash provided by
(used in) financing activities ( 2,298) ( 9,356)
----------- ----------
Increase (decrease) in cash 2,747 ( 9,878)
Cash, beginning 77,275 65,079
----------- ----------
Cash, ending $ 80,022 $ 55,201
=========== ==========
SUPPLEMENTARY DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest $ 77,181 $ 76,334
=========== ==========
F-16
<PAGE>
GAVELLA CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000 AND 1999
(UNAUDITED)
Note 1 - Organization
On June 21, 2000, Gavella Corp. ("Gavella") was formed for the purpose
of effectuating a spin-off of the real estate operations of APTA Holdings,
Inc. ("APTA"). APTA is a financial services holding company. Through its
subsidiaries, APTA 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 August 7, 2000, APTA intends to transfer all of the assets and liabilities
of its 100% wholly owned subsidiary, Spring Village Holdings, Inc. to Gavella
in exchange for 2,000,000 shares of $.001 par value Gavella common stock.
Note 2 - Summary of Significant Accounting Policies
The summary of significant accounting policies is included in the notes
to the consolidated financial statements for the years ended December 31, 1999
and 1998 which were audited and appear in the Form 10SB registration statement
filed by the Company.
Note 3 - Unaudited Financial Statements
The consolidated balance sheet as of March 31, 2000 and 1999 and the
related consolidated statements of operations and deficit, and cash flows for
the three months ended March 31, 2000 and 1999, 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 4 - Basis of Presentation
The consolidated financial statements for periods prior to the spin off
include only those assets and liabilities contributed by APTA as described
above. These financial statements have been prepared using APTA'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 Gavella Corp. 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.
F-17
GAVELLA CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000 AND 1999
(UNAUDITED)
Note 4 - 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 APTA. Management has
allocated such expenses based on its best estimate of the actual time and
effort expended for the benefit of Gavella Corp., and believes such allocation
to be reasonable. Additional corporate overhead expenses of $3,000 per quarter
have been allocated to Gavella and are included in administrative expenses in
the accompanying consolidated statement of operations and deficit with the
offsetting credit amount reflected as contributed additional capital.
Net loss per Share
Net loss per share has been computed giving effect to the issuance of
2,000,000 shares of Gavella Corp. for APTA's investment in Spring Village
Holdings, Inc. Accordingly, weighted average common shares outstanding have
been computed based on the hypothetical shares outstanding of Gavella Corp.
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 APTA since the level of other expenses incurred by
Gavella Corp. may be higher than was incurred on a historical basis.
F-18
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 Gavella Corp.
dated June 21, 2000
3.02 By-laws of Gavella Corp.
10.01 Agreement and Plan for Corporate Separation between
Apta Holdings, Inc., Spring Village Holdings, Inc.
and Registrant
10.02 Provisional Workout Agreement
10.03 Agreement with Resource Properties XXIII, Inc.
10.04 Apartment Management Agreement
21.1 List of Subsidiaries of Registrant
23.01 Consent of Haefele, Flanagan & Co., P.C.
27.01 Financial Data Schedule
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.
Gavella Corp.
/s/ Harry J. Santoro
By: Harry J. Santoro, President
Date: July 24, 2000