As filed with the Securities and Exchange Commission on October 24, 2000
Registration No. 000-31143
-----------------------------------------------------------------------------
U.S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-SB/A
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)
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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 transferred 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. Spring Village Holdings, Inc. owns an 80% controlling interest
in SVG Properties, L.P., a New Jersey limited partnership (the
"Partnership"). The Partnership owns a 124 unit apartment complex. 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 of record as of a
date to be determined by Apta's Board of Directors. It is anticipated that
Apta will retain approximately 24% of the Gavella shares after the spin-off.
The chart below depicts the Company's corporate structure:
------------------
| Gavella Corp. |
------------------
100%
|
-----------------------------
| Spring Village Holdings, Inc.|
-----------------------------
|
|
80%
----------------------
| SVG Properties, L.P. |
----------------------
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, Spring Village Holdings, Inc. acquired, for $50,000, an
80% controlling interest in a 124 unit apartment complex located in Sharon
Hill, Pennsylvania. The Partnership 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 Partnership has used its positive operating cash flow to
reduce debt.
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The consolidated financial statements include the accounts of Gavella Corp.
and its wholly owned subsidiary, Spring Village Holdings, Inc. Spring Village
Holdings, Inc. is the sole general partner of SVG Properties, L.P. and
completely controls the partnership. Accordingly, 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.
For financial reporting purposes, the assets, liabilities, results of
operations and cash flows of the partnership are included in the Company's
consolidated financial statements. The outside investors' limited
partnership interests have been reflected as minority interests.
The Company has had a history of losses and as of June 30, 2000 reported an
accumulated deficit of $281,006. The Company has generated a positive cash
flow from operations in the last two years, and anticipates breakeven net
cash flow after all scheduled debt service in 2000. 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.
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
-----------------------
On December 31, 1995, Spring Village Holdings, Inc., the Company's wholly
owned subsidiary, 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. The table below summarizes the ownership of SVG
Properties, L.P. before and after the purchase:
Ownership of
equity interest in
SVG Properties, L.P. Type of
% Before % After Ownership
-------------------- -----------
Spring Village Holdings, Inc. 0 4.5 General
Spring Village Holdings, Inc. 0 75.5 Limited
Unrelated limited partners 20.0 20.0 Limited
H. James Santoro, Inc. 4.5 0 General
H. James Santoro, Inc. 16.5 0 Limited
HJS Venture Capital Co., Inc. 44.0 0 Limited
Harry J. Santoro 15.0 0 Limited
------ -----
100.0 100.0
Spring Village Holdings, Inc. was the wholly owned subsidiary of Apta Corp.
prior to the transfer to Gavella Corp. on August 7, 2000.
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H. James Santoro, Inc. and HJS Venture Capital Co., Inc. are 100% owned by
Harry J. Santoro, President of the Company.
SVG Properties, L.P. 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 Partnership 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, the Partnership completed the refinancing of its long
term debt. The refinancing completed the first objective of the
Partnership'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+/-
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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
The Company plans to seek new capital to reduce total debt and to seek
strategic acquisitions to enhance shareholder value.
Investment Policies
--------------------
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 manages its properties utilizing its own personnel who are
employed either directly or as subcontractors.
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. There is no limit as to the
number or amount of mortgages which may be placed on each property. It is
the Company's stated long term goal to reduce overall debt to no greater than
80% of the market value of the Company's real estate holdings.
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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.
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 does not intend to originate or
warehouse mortgages, for purposes of sale or servicing.
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.
There are no restrictions on such investments, 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, at the discretion of the Board of Directors, may change the
above outlined investment objectives and criteria or the policies listed
below as it deems appropriate and in the best interests of the Company.
In order to carry out its investment policies outlined above, the officers of
the Company, with the approval of the directors, and without a vote of
security holders except when required by state or federal statutes, may:
1. Issue senior securities
2. Borrow money
3. Make loans to other persons
4. Invest in securities of other issuers for the purpose of
exercising control
5. Underwrite securities of other issuers
6. Engage in the purchase and sale of real estate investments
7. Offer its securities in exchange for property
8. Repurchase or reacquire its shares or other securities
During the past three years, the Company has not engaged in any of the above
listed activities other than the borrowing of approximately $125,000 for
equipment and building improvements. Though the officers of the Company are
authorized to do so, it is unlikely that the Company will engage in any of
the above activities in the foreseeable future other than borrowing money in
the ordinary course of business.
The Company will provide directly to its security holders an annual report
and proxy statement substantially in the form of a Form 10-KSB filed with the
Securities and Exchange Commission. The financial statements in the annual
report will be certified by independent public accountants. The Company
shall also keep the security holders informed about major developments,
either by directly mailing a report to the security holder or through a
public press release supported by a Form 8-K, a quarterly report or other
filing with the Securities and Exchange Commission.
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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.
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Facilities
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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.
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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.
Six Months Ending June 30, 2000 Compared to June 30, 1999
The Company reported total revenues of $416,111 and $396,554 in 2000 and
1999, respectively, an increase of $19,557 or 5%. 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 $294,200 in 1999 to $298,664
in 2000.
Administrative expenses decreased to $75,611 in 2000 from $76,226 in 1999.
Utilities decreased by $3,360. Operating and maintenance expense increased
from $53,070 in 1999 to $53,293 in 2000. Taxes and insurance increased by
$2,996, primarily due to expanded insurance coverage and a switch from
subcontractors to employees. Depreciation increased by $5,220 to $59,088 in
2000, reflecting recent capital improvements being depreciated. Operating
income increased from $102,354 in 1999 to $117,447 in 2000, primarily due to
the increases in total revenues discussed above.
Net interest expense increased by $1,336 from $151,685 in 1999 to $153,021 in
2000.
Net loss decreased from ($49,331) in 1999 to ($35,574) in 2000. Basic net
loss per share was ($.01) in 1999 and ($.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
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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
--------------------------------
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 six months ending June 30, 2000, the Company received $2,742 in
proceeds from notes payable net of repayments, and $6,000 in contributed
capital. Operations provided another $25,572. The Company used $17,105 to
purchase property and equipment, and reduced mortgage debt by $18,553. The
net decrease in cash for the period was $1,344. The Company had $75,931 in
cash on June 30, 2000, exclusive of $75,557 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.
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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.
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.
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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.
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# 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>
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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.
-14-
<PAGE>
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.
-15-
<PAGE>
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.
-16-
<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.
-17-
<PAGE>
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.
-18-
<PAGE>
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 June 30, 2000 and 1999 (unaudited)
Consolidated Statements of Operations for the six months ended June
30, 2000 and 1999 (unaudited)
Consolidated Statements of Cash Flows for the six months ended June
30, 2000 and 1999 (unaudited)
Notes to Financial Statements
-19-
<PAGE>
GAVELLA CORP. (PREDECESSOR)
AND SUBSIDIARY
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
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 - 14
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
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
Minority Interest -0- -0-
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
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 - pro forma ($ .04) ($ .04)
=========== ===========
Average number of common shares outstanding -
Basic - pro forma 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
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
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 and financing 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
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 - Pro Forma
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
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. Spring Village
Holdings, Inc. directly manages the business activities of the partnership.
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. The
terms of the partnership agreement provide that ownership of capital and
allocation of net profits or losses and distributions of cash flow are to be
in proportion to each partner's interest.
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. Spring Village Holdings, Inc. is the sole general partner of SVG
Properties, L.P. and completely controls the partnership. Accordingly, 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.
For financial reporting purposes, the assets, liabilities, results of
operations and cash flows of the partnership are included in the Company's
consolidated financial statements. The outside investors' limited partnership
interests have been reflected as minority interests.
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.
F-7
GAVELLA CORP. (PREDECESSOR) AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
Note 3 - Summary of Significant Accounting Policies (continued)
Rental Real Estate Revenues
Rental real estate revenues include rental income and fees earned from
tenants for late charges, laundry income and other housing related services.
Tenant fees for the years ended December 31, 1999 and 1998 were $33,561 and
$31,387.
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.
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, consisting primarily of debt issue costs, are
amortized using the straight-line method over ten years, the term of the related
debt. 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-8
GAVELLA CORP. (PREDECESSOR) AND SUBSIDIARY
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.
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
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
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
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's provision for income taxes for the years ended December 31,
1999 and 1998 consists of the following:
1999 1998
---- ----
Current
Federal -0- -0-
State -0- -0-
Deferred -0- -0-
----- -----
$-0- $-0-
===== =====
The income tax provision for continuing operations varied from the federal
statutory tax rate as follows for each year:
1999 1998
---- ----
U.S. Statutory Rate (15%) (15%)
State income taxes ( 9%) ( 9%)
Valuation allowance 24% 24%
----- -----
0% 0%
===== =====
Deferred income taxes (benefit) reflect the tax effects of temporary
differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes, and the tax
effects of net operating losses that are available to offset future taxable
income. Significant components of the Company's deferred tax assets at December
31, 1999 and 1998 are as follows:
1999 1998
---- ----
Net operating loss
carryforwards $116,000 $ 96,000
Valuation allowance (116,000) (96,000)
--------- ---------
$ 0 $ 0
========= =========
Based on the Company's history of recurring losses, there is uncertainty
as to the realization of the net operating loss carryforwards. Accordingly, a
valuation allowance has been provided for those deferred tax assets which
management believes it is more likely than not that the tax benefit will not be
realized. 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.
F-13
GAVELLA CORP. (PREDECESSOR) AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
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-14
GAVELLA CORP. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
JUNE 30, 2000 AND 1999
(UNAUDITED)
ASSETS
2000 1999
Rental property, net $ 3,229,865 $ 3,282,045
Cash 75,931 61,399
Cash held in escrow 75,557 72,905
Accounts receivable 5,012 890
Prepaid expenses 26,944 24,686
Deferred financing costs, net 62,571 71,211
----------- -----------
Total Assets $ 3,475,880 $ 3,513,136
=========== ===========
LIABILITIES AND DEFICIT
Liabilities
Mortgage notes payable $3,336,982 $ 3,373,341
Notes payable 274,271 225,000
Accrued interest 41,636 41,876
Accounts payable 9,540 14,091
Accrued expenses 20,811 24,914
Security deposits payable 73,646 61,385
----------- -----------
Total liabilities 3,756,886 3,740,607
Minority interest -0- -0-
Deficit ( 281,006) ( 227,471)
----------- -----------
Total Liabilities
and Deficit $3,475,880 $ 3,513,136
=========== ===========
F-15
GAVELLA CORP. (PREDECESSOR) AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS AND DEFICIT
FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND 1999
(UNAUDITED)
2000 1999
----------- -----------
Revenues
Rental real estate $ 416,111 $ 200,671
----------- -----------
Total revenues 416,111 200,671
Operating Expenses
Administrative expenses 75,611 76,226
Utilities expense 48,337 51,697
Operating and maintenance 53,293 53,070
Taxes and insurance 62,335 59,339
Depreciation and amortization 59,088 53,868
----------- -----------
Total operating expenses 298,664 294,200
----------- -----------
Operating income 117,447 102,354
Other income (expense)
Interest income 1,264 806
Interest expense ( 154,285) ( 152,491)
----------- -----------
Total other income (expense) ( 153,021) ( 151,685)
----------- -----------
Net loss ( 35,574) ( 49,331)
Accumulated deficit - beginning ( 251,432) ( 184,140)
Contributed additional capital 6,000 6,000
----------- -----------
Accumulated deficit - ending ($ 281,006) ($ 227,471)
=========== ===========
Basic net loss per share -
pro forma ($ .01) ($ .01)
=========== ===========
Average number of common
shares outstanding -
Basic - pro forma 2,000,000 2,000,000
=========== ===========
F-16
GAVELLA CORP. (PREDECESSOR) AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND 1999
(UNAUDITED)
2000 1999
----------- ----------
Cash Flows From Operating Activities:
Net loss ($ 35,574) ($ 49,331)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization expense 59,088 53,868
(Increase) decrease in:
Accounts receivable 7,974 9,639
Prepaid expenses 25,569 25,142
Cash held in escrow ( 23,976) ( 20,106)
Increase (decrease) in:
Accounts payable ( 7,730) ( 7,754)
Accrued expenses 38 ( 741)
Other liabilities ( 4,269) ( 3,571)
Security deposits payable 4,362 4,978
----------- ----------
Net cash provided by operating activities 25,572 12,124
----------- ----------
Cash Flows From Investing Activities:
Purchases of property and equipment ( 17,105) ( 10,816)
----------- ----------
Net cash used in investing activities ( 17,105) ( 10,816)
----------- ----------
Cash Flows from Financing Activities:
Repayment of mortgage notes payable ( 18,553) ( 17,088)
Repayment of short-term notes ( 2,258) ( 3,900)
Proceeds from notes payable 5,000 10,000
Contributed additional capital 6,000 6,000
----------- ----------
Net cash provided by
(used in) financing activities ( 9,811) ( 4,988)
----------- ----------
Increase (decrease) in cash ( 1,344) ( 3,680)
Cash, beginning 77,275 65,079
----------- ----------
Cash, ending $ 75,931 $ 61,399
=========== ==========
SUPPLEMENTARY DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest $ 154,285 $ 152,491
=========== ==========
F-17
GAVELLA CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 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 transferred 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 June 30, 2000 and 1999 and the
related consolidated statements of operations and deficit, and cash flows for
the six months ended June 30, 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
JUNE 30, 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 - Pro Forma
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
10.05* Fourth Amended and Restated Partnership Agreement of
S.V.G. Properties, L.P.
10.06* First Amendment to the Fourth Amended and Restated Partnership
Agreement of S.V.G. Properties, L.P.
10.07* Second Amendment to the Fourth Amended and Restated Partnership
Agreement of S.V.G. Properties, L.P.
10.08* Third Amendment to the Fourth Amended and Restated Partnership
Agreement of S.V.G. Properties, L.P.
21.1 * List of Subsidiaries of Registrant
23.01* Consent of Haefele, Flanagan & Co., P.C.
--------------
*filed previously
-19-
<PAGE>
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: October 24, 2000
-20-
<PAGE>
