<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997 COMMISSION FILE NO. 0-1322
----------------- ------
KNICKERBOCKER VILLAGE, INC.
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(Exact name of Registrant as specified in its Charter
<TABLE>
<CAPTION>
<S> <C>
NEW YORK 13-0924285
- ------------------------------------------------------------- ------------------
(I.R.S. Employer
(State or other jurisdiction of incorporation Identification No.)
or organization)
10 Monroe Street, New York, New York 10002
- ------------------------------------------------------------- --------------
(Address of principal Executive Offices) Zip Code
Registrant's Telephone Number, including Area Code: (212) 227-0955
Securities registered pursuant to Section 12(b) of the Act: --------------
</TABLE>
Name of each exchange
Title of each class on which registered
- ------------------- -----------------------
NONE NONE
Securities registered pursuant to Section 12(g) of the Act:
Limited Dividend Capital Stock, Par Value $2.15
- --------------------------------------------------------------------------------
(Title of class)
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B and will not be contained to the best of Registrant's
knowledge, in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB
__________.
Check whether the Registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter periods that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past ninety (90) days.
Yes X No
---- ----
<PAGE>
State Registrant's revenues for its most recent fiscal year:$10,040,000.00
--------------
State the aggregate market value of the voting stock held by non-affiliates
of the Registrant as of February 28, 1998. Approximately $16,000 which is based
on par value of the voting stock. No active trading market exists for the
Registrant's Capital Stock.
Indicate the number of shares outstanding of each of the Issuer's classes
of Common Stock, as of February 28, 1998.
Capital Stock, $2.15 par value - 147,464 Shares
DOCUMENTS INCORPORATED BY REFERENCE - NONE
Transitional Small Business Disclosure Format:
Yes No X
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2
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KNICKERBOCKER VILLAGE, INC.
INDEX TO FORM 10-KSB - PARTS I - IV
-----------------------------------
PAGE NO.
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PART I -
Item 1. DESCRIPTION OF BUSINESS.................................5-8
Item 2. DESCRIPTION OF PROPERTIES...............................9-10
Item 3. LEGAL PROCEEDINGS.......................................11
Item 4. SUBMISSION OF MATTERS TO A VOTE
OF SECURITY HOLDERS.....................................11
PART II -
Item 5. MARKET FOR THE REGISTRANT'S
COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.....................................11
Item 6. MANAGEMENT'S DISCUSSION AND
ANALYSIS OR PLAN OF OPERATION...........................11-14
Item 7. FINANCIAL STATEMENTS....................................14
Item 8. CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE....................................14
PART III -
Item 9. DIRECTORS, EXECUTIVE OFFICERS,
PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH 16(a) OF
THE EXCHANGE ACT........................................15-16
3
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Page No.
--------
Item 10. EXECUTIVE COMPENSATION.................................16
Item 11. SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND
MANAGEMENT.............................................17
Item 12. CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS...................................18
PART IV -
Item 13. EXHIBITS AND REPORTS ON
FORM 8-K...............................................18
4
<PAGE>
PART I
------
ITEM 1 DESCRIPTION OF BUSINESS
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The Registrant is a "limited dividend housing corporation" created and formed
under the New York Private Housing Law on September 5, 1933. The Registrant
owns a housing development located at the corners of Monroe, Market, Catherine
and Cherry Streets in Manhattan, New York. The properties are managed by Cherry
Green Property Corp., the Managing Agent, and is subject to the supervision of
the New York State Division of Housing and Community Renewal ("DHCR"), which
must approve all management fees and rent increases and contracts in excess of
$30,000. (See "Item 12-Certain Relationships and Related Transactions").
Dividends to stockholders are limited by law to six percent (6.0%) of par value
on a cumulative basis. The Registrant has not paid any dividends since 1968.
As a result, the cumulative dividends unpaid through December 31, 1997, amounted
to approximately $552,000 or approximately $3.74 per share. (See Note 7 of
Notes to Financial Statements). No dividends were declared or paid during 1997
or 1996. In the event of liquidation, stockholders cannot receive more than the
cumulative unpaid dividends, plus the amount of their original investment. Any
surplus in excess of such amounts reverts to public authorities.
The Registrant's properties are managed by Cherry Green Property Corp., pursuant
to a Management Contract approved by the DHCR. Cherry Green Property Corp. is a
real estate management company, which manages and administers real estate.
Cherry Green Property Corp. is the record and beneficial owner of over ninety-
five percent (95.0%) of the Registrant's outstanding shares. During 1997, the
Registrant paid Cherry Green Property Corp. a management fee approved by the
DHCR in the amount of approximately $945,000 compared to approximately $924,000
paid in 1996. (See Exhibit 10.1 annexed hereto and Note 9 of Notes to Financial
Statements.) The Registrant employs fifty-four (54) persons, all of whom are
full-time employees.
In 1996, the Registrant received a two step rent increase. The first increase of
approximately 5.5% was effective June 1, 1996 and the second increase of
approximately 5.3% was effective June 1, 1997. Accordingly, net rental income in
1997 increased by approximately $466,000 over 1996 amounts, primarily due to the
two step rent increase referred to above, partially offset by decreases in
retroactive surcharges, commercial rental income and other charges to tenants.
Other income in 1997 decreased by approximately $5,000 from 1996 amounts
primarily due to a decrease in interest income resulting from lower reserve fund
balances. Operating expenses for 1997 increased by approximately $234,000, or
2.4%, due to increases in wages and related costs, real estate taxes, utilities,
maintenance, repairs and decorating, depreciation and amortization, management
and administration fees and miscellaneous operating and general expenses offset
by decreases in mortgage and other interest and the
5
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provision for doubtful accounts. Wages and related costs increased by
approximately $107,000 or approximately five percent (5.0%) in 1997 as
compared in 1996. This increase was attributable to the hiring of an
environment coordinator at an annual salary of approximately $40,000, increase
in union wage rates and related payroll taxes of approximately $49,000 and an
increase in employee benefits of approximately $18,000. Real estate taxes
increased by approximately $26,000 or approximately three percent (3.0%) in
1997 as compared to 1996 due to increases in the property's assessed valuation
for the tax year ended June 30, 1998 and increase in the New York City tax
rates. Utilities increased by approximately $41,000 or approximately two
percent (2.0%) in 1997 primarily due to a rise in The City of New York's
frontage charges offset by reductions in fuel oil prices during 1997.
Depreciation and amortization increased in 1997 by approximately $58,000 or
approximately eleven percent (11.0%) primarily due to additional depreciation
expense incurred on the acquisition of fixed assets and the write off of
mortgage costs of approximately $21,000 related to the Company's pre-existing
mortgage debt.
Mortgage and other interest decreased by approximately $69,000 or approximately
eleven percent (11.0%) in 1997 as compared to 1996 primarily due to the
extension and modification of the Registrant's mortgage payable (See Note 5 to
the financial statements, Page F-9). The agreement reduced the interest rate on
the related mortgage debt from 10.0% per annum to 8.5% per annum. The
management fee increased by approximately $22,000 or approximately two percent
(2.0%) in 1997 as compared to 1996 primarily due to increases in the management
fee, which were approved by the DHCR of 2.44% effective July 1, 1997, and 2.75%
effective July 1, 1996. In addition the Registrant received a management agent
financial award in 1997, which was approved by the DHCR, that exceeded the
amount received in 1996 by approximately $2,000. The provision for doubtful
accounts decreased by approximately $36,000 or approximately forty one percent
(41%) in 1997 as compared to 1996, primarily due to improved collection on
accounts receivable. Miscellaneous operating and general expenses increased by
approximately $40,000 or approximately three percent (3.0%) in 1997 as compared
to 1996, primarily due to increases in social services and security costs. The
provision for income tax decreased by approximately $6,000 in 1997 compared to
1996, primarily due to the increases in the 1997 deferred tax benefit due to
changes in the Registrant's valuation allowance. (See Note 7 to the Financial
Statements, Pages F-10 and F-11).
RE-FINANCE OF MORTGAGE
----------------------
On January 30, 1997 (the "Closing Date"), Registrant entered into a
Consolidation, Modification and Extension Agreement, (the "Loan Agreement"), by
and among the Registrant, and The Greater New York Savings Bank now known as
Astoria Federal Savings Bank (the "Bank" or "Mortgage Lender") (capitalized
terms not otherwise defined herein are used herein as set forth in the Loan
Agreement) relating to a loan in the principal amount of $6,300,000 (the "Loan
Amount"), previously filed with the Registrant's Form 10-KSB, for the year ended
December 31, 1996, with a ten (10) year term, (with a five year option to
6
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extend the loan as described below) with interest at eight and one-half percent
(8 1/2%) per annum. At the time of closing, the principal balance due on the
existing mortgage was $5,994,529.72. The mortgage increase of $305,470.28 was
evidenced by the "Gap" Mortgage and "Gap" Note. The current monthly principal
and interest under the Note is $50,729.32, with a monthly escrow for taxes of
$103,090.68 and the total monthly payment is $153,820.00. The Loan Agreement
provides that the Loan Amount will be repaid at the aforesaid interest rate in
equal monthly installments sufficient to repay the Loan Amount in twenty-five
(25) years. The Loan Agreement has been approved by the DHCR. Principal
payments due on the Mortgage for the next two (2) years are approximately:
$82,000 (1998); and $89,000 (1999). As a result of the refinancing, annual
payments of principal and interest due the Bank, will be reduced by
approximately $155,000 per annum. Prepayment may be made by the Registrant with
thirty (30) days prior written notice to the Bank with a prepayment penalty of:
5% of the outstanding principal balance if prepaid during the first, second or
third year of the initial term or the first year of any extended term; 4% of the
outstanding principal balance if prepaid during the fourth, fifth or sixth year
of the initial term or the second year of any extended term; 3% of the
outstanding principal balance if prepaid during the seventh or eighth year of
the initial term or the third year of any extended term; 2% of the outstanding
principal balance if prepaid during the ninth year of the initial term or the
fourth year of any extended term; 1% of the outstanding principal balance if
prepaid during the first six months of the tenth year of the initial term or the
first six months of the fifth year of any extended term; and there shall be no
prepayment penalty during the last six months of the tenth year of the initial
term or the last six months of the fifth year of any extended term.
At Registrant's option, Registrant may extend the Maturity Date to a date which
is five (5) years from the Maturity Date, subject to the following terms and
conditions:
(a) Registrant shall give the Mortgage Lender written notice not less
than sixty (60) days or greater than six (6) months prior to the
Maturity Date;
(b) Registrant shall not be in default in its obligations under any of
the documents evidencing the Mortgage on the date the Registrant
exercises its option to extend the Maturity Date and on the Maturity
Date;
(c) Registrant shall pay to the Mortgage Lender an "Extension Fee"
equal to one-half (1/2%) percent of the outstanding principal balance
of the Mortgage;
(d) During the extended term, Registrant shall repay the principal
balance of the Mortgage outstanding on the Maturity Date with interest
at the Extended Term Interest Rate (as hereinafter defined), in equal
monthly installments sufficient to repay such principal balance in
fifteen (15) years. The term "Extended Term Interest Rate" means a
rate that is one hundred seventy-five (175) basis points (1.75%) over
the average yield on actively traded United States Treasury securities
adjusted to a constant maturity of five (5) years. The Extended Term
Interest Rate shall be effective on the Maturity Date and
7
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determined on a date which is three (3) days before the Maturity Date.
In no instance however, shall the Extended Term Interest Rate be less
than the Interest Rate.
(e) The outstanding principal amount of the Mortgage on the Maturity
Date shall not exceed seventy-five percent (75%) of the combined
appraised value of the subject Property as based on an appraisal of
such Property, which value will be determined by the Mortgage Lender
in its sole and absolute discretion and which appraisal shall be
prepared by the Mortgage Lender's appraisers at Registrant's sole cost
and expense.
(f) The combined actual net operating income of the subject Property
shall exceed the debt service by 1.25 times as determined by the
Mortgage Lender in its sole and absolute discretion. Debt service
coverage shall be calculated for the twelve (12) calendar month period
ending immediately preceding the date the required extension notice is
delivered to the Mortgage Lender and shall be based on the outstanding
principal balance amount of the Loan on the Maturity Date and the
Extended Term Interest Rate.
(g) To the extent that the Registrant is prohibited from extending the
term of the Mortgage solely due to its failure to satisfy both
requirements (e) and (f) immediately above, the Registrant may repay
principal to the Mortgage Lender in a sufficient amount, as determined
by the Mortgage Lender, so as to enable Registrant to satisfy
requirements (e) and (f) above based on the reduced principal amount
outstanding after such payments are made.
8
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ITEM 2 DESCRIPTION OF PROPERTIES
- ------ -------------------------
The Registrant's property consists of twelve (12) apartment buildings, eleven
(11) of which are twelve (12) stories high and one which is ten (10) stories
high, constructed in 1934 at Monroe and Catherine Streets in New York City and
consisting of approximately 6,000 rooms in approximately 1,600 apartments with
commercial stores on the ground floor of some of the buildings. The Registrant
believes that such premises are in satisfactory condition and are suitable for
use as residential dwellings and commercial units, as applicable. The
buildings, land and boiler are subject to a mortgage in the principal amount of
approximately $6,237,000 owing at December 31, 1997. (See Item 1 above and Note
5 to Financial Statements.)
Management believes that the Registrant's properties are adequately covered by
insurance.
The Registrant's residential properties have an occupancy rate of approximately
ninety-nine (99%) percent. No tenant occupies ten (10%) percent or more of the
rentable square footage of the properties. The Registrant's properties are
principally used for rental of residential apartments for low to middle income
families. The Registrant has approximately $786,000 in monthly revenue from
residential space, with an average effective annual rental per room of
approximately $131.00 for the year ended December 31, 1997. The average
apartment is three and one-half (3 1/2) rooms. Annual revenues from residential
leases was approximately $9,368,000 for the year ended December 31, 1997.
Residential leases of which there are approximately sixteen hundred (1600), are
generally renewed, subject to the terms of the applicable leases and compliance
by the tenants with same. The total annual rental income on fifteen (15)
commercial leases for the year ended December 31, 1997, was approximately
$276,000. Accordingly, gross annual revenue for 1997 from residential leases was
approximately ninety seven percent (97%) compared to commercial leases which
accounted for approximately three percent (3%) of gross annual revenue.
Real estate taxes on the Registrant's properties were approximately $817,000,
for the year ended December 31, 1997. The tax rate for the 1997 tax year was
approximately eleven percent (11%).
9
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The Registrant's estimated replacement, repairs and renovation budget and status
of projects for June 1, 1997 to May 31, 1998 ("1997 Projects") and June 1, 1998
to May 31, 1999 ("1998 Projects") are as follows:
1997 PROJECTS APPROXIMATE COST
- ------------- ----------------
Terrace Replacement $540,362.00
Asbestos Abatement 350,000.00
Plumbing Study 30,000.00
Replacement of House Water
Pump (Second Phase) 12,000.00
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TOTAL: $932,362.00
1998 PROJECTS APPROXIMATE COST
- ------------- ----------------
Entry Gate Replacement $ 75,000.00
Window Bars Replacement 100,000.00
Terrace Replacement/
Waterproofing 250,000.00
Oil Tank Replacement 150,000.00
Water Supply and Plumbing
Replacement 300,000.00
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TOTAL: $875,000.00
The above estimates are for informational purposes only, and the actual costs of
such projects may differ. The cost of these projects are funded from operations,
and the money is deposited in an escrow account which is supposed to be funded
monthly in an amount of approximately $69,000. However, the Registrant was in
arrears in its monthly funding in an amount of approximately $92,000 for the
year ended December 31, 1997. (See Notes 4 and 11 to Financial Statements.)
The Registrant made a commitment to its Bank to complete asbestos abatement work
in the amount of $200,000 and lead abatement work in the amount of $225,000 at
its premises in 1997 and 1998. Remaining costs of approximately $389,000 for
asbestos abatement or lead paint remediation have been accrued by the
Registrant. The costs of additional asbestos abatement or lead paint
remediation, if necessary, at the Registrant's properties in excess of the
amounts accrued at December 31, 1997, can not be determined at this time.
10
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ITEM 3 LEGAL PROCEEDINGS
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None.
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
- ------ -----------------------------------------------------
None.
ITEM 5 MARKET FOR THE REGISTRANT'S COMMON
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EQUITY AND RELATED STOCKHOLDER MATTERS
--------------------------------------
The Company's Limited Dividend Capital Stock, par value $2.15 ("Capital Stock"),
is traded over-the-counter. No established trading market exists with respect
to such stock since approximately 140,242 shares (approximately 95%) of the
147,464 shares outstanding are owned by Cherry Green Property Corp. Since 1971,
no bid and asked prices have been reported by the National Quotation Bureau,
Inc.
No dividends have been paid since 1968. The holders of Capital Stock cannot, at
any time, receive repayment of their investment in excess of the par value of
the stock, together with cumulative unpaid dividends at the rate of 6.0% of par
value ($2.15 per share) per annum (without interest). Dividends amounting to
$19,023 were declared during 1979, but were not paid as of December 31, 1997.
No dividends were declared or paid in 1997 or 1996. Cumulative dividends unpaid
as of December 31, 1997 and December 31, 1996 amounted to approximately $552,000
and $533,000 (approximately $3.74 and $3.61 per share), respectively. (See
Note 7 of Notes to Financial Statements.)
There are approximately 340 holders of record of the Registrant's Capital Stock
as of March 1, 1998.
ITEM 6 MANAGEMENT'S DISCUSSION AND ANALYSIS
- ------ ------------------------------------
OR PLAN OF OPERATIONS
---------------------
A) LIQUIDITY - As of December 31. 1997, the Registrant had a working capital
deficiency of approximately $301,000. At December 31, 1996, the Registrant had
a working capital deficiency of approximately $316,000. As of December 31,
1997, the Registrant was in arrears on its required contributions to its special
fund for replacements, painting and decoration in the amount of approximately
$92,000. (See Note 11 to the financial statements, page F-12. During April
1996, the Registrant received a two step rent increase, which was approved by
the DHCR. The first increase of approximately 5.5% was effective June 1, 1996.
The second increase of approximately 5.3% was effective June 1, 1997. (See Item
I above and (C) below and Note 12 to the Financial Statements, Page F-12). On
January 30, 1997, the Registrant entered into an extension and modification
agreement with
11
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its Bank, which increased the principal amount of the Registrant's mortgage
payable to $6,300,000. (See Note 5 to the Financial Statements, Page F-9). The
annual payments of principal and interest due to the Bank will be reduced by
approximately $155,000 per annum. Subject to unforeseen circumstances, the two
step rent increase effective June 1, 1996 and June 1, 1997 and the extension and
modification of the Registrant's mortgage payable, which took place on January
30, 1997, will increase the future liquidity of the Registrant.
B). CAPITAL RESOURCES - The Registrant has set aside funds for capital
improvements and repairs amounting to approximately $173,956 and $115,975 as of
December 31, 1997 and 1996. (See Note 4 to the Financial Statements, Page F-9).
C). RESULTS OF OPERATIONS - In 1996, the Registrant received a two step rent
increase. The first increase of approximately 5.5% was effective June 1, 1996
and the second increase of approximately 5.3% was effective June 1, 1997.
Accordingly, net rental income in 1997 increased by approximately $466,000 over
1996 amounts, primarily due to the two step rent increase referred to above,
partially offset by decreases in retroactive surcharges, commercial rental
income and other charges to tenants. Other income in 1997 decreased by
approximately $5,000 from 1996 amounts primarily due to a decrease in interest
in income resulting from lower reserve fund balances. Operating expenses for
1997 increased by approximately $234,000, or 2.4%, due to increases in wages and
related costs, real estate taxes, utilities, maintenance, repairs and
decorating, depreciation and amortization, management and administration fees
and miscellaneous operating and general expenses offset by decreases in mortgage
and other interest and the provision for doubtful accounts. Wages and related
costs increased by approximately $107,000 or approximately five percent (5.0%)
in 1997 as compared in 1996. This increase was attributable to the hiring of an
environment coordinator at an annual salary of approximately $40,000, increase
in union wage rates and related payroll taxes of approximately $49,000 and an
increase in employee benefits of approximately $18,000. Real estate taxes
increased by approximately $26,000 or approximately three percent (3.0%) in 1997
as compared to 1996 due to increases in the property's assessed valuation for
the tax year ended June 30, 1998 and increase in the New York City tax rates.
Utilities increased by approximately $41,000 or approximately two percent (2.0%)
in 1997 primarily due to a rise in The City of New York's frontage charges
offset by reductions in fuel oil prices during 1997. Depreciation and
amortization increased in 1997 by approximately $58,000 or approximately eleven
percent (11.0%) primarily due to additional depreciation expense incurred on the
acquisition of fixed assets and the write off of mortgage costs of approximately
$21,000 related to the Company's pre-existing mortgage debt.
Mortgage and other interest decreased by approximately $69,000 or approximately
eleven percent (11.0%) in 1997 as compared to 1996 primarily due to the
extension and modification of the Registrant's mortgage payable (See Note 5 to
the financial statements, Page F-9). The agreement reduced the interest rate on
the related mortgage debt from
12
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10.0% per annum to 8.5% per annum. The management fee increased by
approximately $22,000 or approximately two percent (2.0%) in 1997 as compared to
1996 primarily due to increases in the management fee, which were approved by
the DHCR of 2.44% effective July 1, 1997, and 2.75% effective July 1, 1996. In
addition the Registrant received a management agent financial award in 1997,
which was approved by the DHCR, that exceeded the amount received in 1996 by
approximately $2,000. The provision for doubtful accounts decreased by
approximately $36,000 or approximately forty one percent (41%) in 1997 as
compared to 1996, primarily due to improved collection on accounts receivable.
Miscellaneous operating and general expenses increased by approximately $40,000
or approximately three percent (3.0%) in 1997 as compared to 1996, primarily due
to increases in social services and security costs. The provision for income
tax decreased by approximately $6,000 in 1997 compared to 1996, primarily due to
the increases in the 1997 deferred tax benefit due to changes in the
Registrant's valuation allowance. (See Note 7 to the Financial Statements,
Pages F-10 and F-11).
In 1996, the Registrant received a two step rent increase, the first increase of
approximately 5.5% was effective June 1, 1996 and the second increase of
approximately 5.3% was effective June 1, 1997. Accordingly, net rental income
in 1996 increased by approximately $256,000 over 1995 amounts. Other income in
1996 decreased by approximately $23,000 from 1995 amounts due to a decrease in
interest income resulting from lower reserve fund balances. Operating expenses
for 1996, increased by approximately $250,000, or three (3.0%) due to increases
in wages and related costs, real estate taxes, utilities, depreciation and
amortization, and management fees offset by decreases in mortgage and other
interest and miscellaneous operating and general expenses. Wages and related
costs increased by approximately $81,000 or approximately four percent (4.0%) in
1996 as compared to 1995. This increase was attributable to an increase in
wages and related payroll taxes of approximately $50,000 primarily due to
increases in union wage rates, and an increase in employee benefits of
approximately $31,000 primarily due to increases in union pension rates. Real
estate taxes increased by approximately $36,000 or approximately five percent
(5.0%) in 1996 as compared to 1995 due to increases in the New York City tax
rates. Utilities increased by approximately $72,000 or approximately four
percent (4.0%) in 1996 primarily due to a rise in fuel oil prices during 1996.
Depreciation and amortization increased in 1996 as compared to 1995 by
approximately $56,000 or approximately twelve percent (12.0%) primarily due to
additional depreciation expense incurred on the acquisition of fixed assets.
Mortgage and other interest decreased by approximately $14,000 or approximately
two percent (2.0%) in 1996 as compared to 1995 due to a reduction in the
principal balance due on the related mortgage debt. The management fee increased
by approximately $48,000 or five percent (5.0%) in 1996 as compared to 1995, due
to increases in the management fee, which were approved by the DHCR of 2.3%
effective July 1, 1995, and 2.75% effective July 1, 1996. In addition the
Registrant received a management agent financial award in 1996, which was
approved by the DHCR, that exceeded the amount received in 1995 by approximately
$24,000. Miscellaneous operating and general expenses decreased by approximately
$32,000 or approximately two percent (2.0%) in 1996 as compared to 1995,
13
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primarily due to a decrease in security costs. The provision for income taxes
increased by approximately $34,000 in 1996 compared to 1995, primarily due to
reductions in the 1995 deferred tax provision due to changes in the Registrant's
valuation allowance.
ITEM 7 FINANCIAL STATEMENTS
- ------ --------------------
Information required by this Item is attached to this Report as pages
F-1 through F-12 following Part IV, Item 13.
ITEM 8 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
- ------ ---------------------------------------------
ON ACCOUNTING AND FINANCIAL DISCLOSURE
--------------------------------------
None.
14
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PART III
--------
<TABLE>
<CAPTION>
ITEM 9 DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS
----------------------------------------
CONTROL AND PERSONS; COMPLIANCE WITH SECTION 16(A)
--------------------------------------------------
OF THE EXCHANGE ACT
-------------------
<S> <C> <C> <C> <C>
Position with Held Principal
Name Age Registrant Since Occupation
- --------------------------- --- ------------- ----- ---------------
Irene Pletka (1) (2) 56 President and 1977 Commercial Photographer
Director
Peter Pletka (1) (2) 60 Vice 1992 Physician
President
Howard Kestenberg 41 Director 1992 Real Estate Entrepreneur
(3)
Robert Gershon 61 Director, 1977 Principal in the firm of
(2) (4) Vice President Carl Gershon & Co., a
and Treasurer Real Estate Brokerage.
Melvin Gershon 55 Director and 1977 Principal in the firm of
(2) (4) Secretary Carl Gershon & Co.
Loretta Jefferson 55 Director 1997 Housing Management
Representative, New York
State Division of Housing
and Community Renewal.
</TABLE>
__________________________________________________
(1) Dr. Peter Pletka and Mrs. Irene Pletka are husband and wife.
(2) Irene Pletka, Dr. Peter Pletka, Robert Gershon and Melvin Gershon are all
shareholders, officers and directors of Cherry Green Property Corp. (See
Item 11-Security Ownership of Certain Beneficial Owners and Management and
Item 12-Certain Relationships and Related Transaction).
(3) Mr. Kestenberg is a shareholder of Cherry Green Property Corp. (See Item
11-Security Ownership of Certain Beneficial Owners and Management and Item
12-Certain Relationships and Related Transaction).
(4) Mr. Melvin Gershon and Mr. Robert Gershon are brothers.
15
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The respective terms of the officers and directors of the Registrant will
continue until the next Annual Meeting of Shareholders or until their
successors have been elected and qualified in accordance with the
Registrant's By-laws.
Compliance with Section 16(a) of the Securities Exchange Act of 1934
--------------------------------------------------------------------
Section 16(a) of the Securities Exchange Act of 1934 (the "Exchange
Act") requires the Company's directors and executive officers, and
persons who own more than ten percent (10%) of a registered class of
the Company's equity securities, to file with the Securities and
Exchange Commission ("SEC") and the American Stock Exchange, initial
reports of ownership and reports of changes in ownership of common
stock and other equity securities of the Company. Officers, directors
and greater than ten percent shareholders are required by SEC
regulation to furnish the Company with copies of all Section 16(a)
forms they file.
Management believes that Cherry Green Property Corp. has made all
requisite filings of Form 3, 4 and 5 required to be filed under 16(a)
of the Exchange Act relating to the Registrant during the two (2)
fiscal years ended December 31, 1997 and 1996, respectively.
ITEM 10 EXECUTIVE COMPENSATION
- ------- ----------------------
During the year ended December 31, 1997, no officer or director of the
Registrant received any compensation from the Registrant for his or
her services. The Registrant did not grant or award stock options,
stock appreciation rights or long-term incentive plans to any of its
executive officers in the last fiscal year. The Registrant does not
presently maintain a pension plan or other retirement plan for its
named executive officers.
The housing complex owned by the Registrant is managed by Cherry Green
Property Corp., pursuant to a management contract approved by the
DHCR. Cherry Green was granted an increase in its management fee of
2.44%, effective July 1, 1997, pursuant to a Contract for Managing
Agents Extension Agreement, approved by the DHCR on October 22, 1997.
(See Exhibit 10.1 annexed hereto.) Such fee is reviewed and adjusted
annually effective July 1 of each year, by the DHCR. Cherry Green
Property Corp. owns over 95.0% of the Registrant's Capital Stock.
Several officers and directors of Cherry Green Property Corp. are
officers and directors of the Registrant. (See Item 9 herein). During
1997, the Registrant paid Cherry Green Property Corp. a management and
administrative fee of approximately $945,000. Such fee was approved
by the DHCR. (See Items 1, 9, 11 and 12 and Note 9 of Notes to
Financial Statements.)
16
<PAGE>
ITEM 11 SECURITY OWNERSHIP OF CERTAIN
- ------- -----------------------------
BENEFICIAL OWNERS AND MANAGEMENT.
---------------------------------
(a) Security Ownership of Certain Beneficial Owners.
Following is a list of those persons known by the
Registrant to be the beneficial owners of more than 5% of
the outstanding Capital Stock of the Registrant as of
December 31, 1997:
Name and Address Amount and Nature Percent of
Title of Class of Beneficial Owner of Beneficial Ownership Class
- ------------------- ------------------- ----------------------- ------
Limited Dividend Cherry Green 140,242 Shares of 95%
Capital Stock, Property Corp. Record and Beneficial
(par value $2.15) 11 Monroe Street Ownership
New York, NY
(b) Security Ownership of Management
As of December 31, 1997, no Directors or Officers owned any
shares of the Registrant's Limited Dividend Capital Stock,
$2.15 par value. However, the following Officers and
Directors of the Registrant own of record and beneficially
that percentage of Common Stock of Cherry Green Property
Corp. as set forth below:
Percent Owned of Cherry
Name Position with Registrant Green Property Corp.
- -------------------- ------------------------ -----------------------
Irene Pletka (1) Director and President 53.3
Peter Pletka (1) Vice President 53.3
Howard Kestenberg Director 18.3
Robert Gershon (2) Director, Vice President 9.6
and Treasurer
Melvin Gershon (2) Director and Secretary 6.3
- -----------------------------------------------------
(1) Such shares of Cherry Green Property Corp. are owned collectively
by Dr. and Mrs. Pletka.
(2) Robert Gershon and Melvin Gershon are brothers.
17
<PAGE>
(c) Change in control.
There are no known arrangements, the application of which may at
a subsequent date result in a change in control of the
Registrant.
ITEM 12 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- ------- ----------------------------------------------
The Registrant is managed by Cherry Green Property Corp., the owner of
over 95% of the Registrant's outstanding Capital Stock. Several
officers and directors of the Registrant are shareholders, officers
and directors of Cherry Green Property Corp. (See Items 1, 9, 10 and
11 herein). During 1997, the Registrant paid Cherry Green Property
Corp. a management and administrative fee of approximately $945,000.
Such fee was approved by the DHCR pursuant to a contract, effective
July 1, 1997. (See Exhibit 10.1 annexed hereto) (See Note 9 of Notes
to Financial Statements).
PART IV
-------
ITEM 13 EXHIBITS AND REPORTS ON FORM 8-K
- ------- --------------------------------
(a) The list of Financial Statements and Notes required by Item 7 and
by Item 13(a) are set forth on pages F-1 through F-12 attached
hereto.
(b) Reports on Form 8-K:
None.
(c) Exhibits:
10.1 - Contract for Managing Agent Extension Agreement, dated as
of July 1, 1997, by and between Knickerbocker Village, Inc.
and Cherry Green Property Corp. and approved by the New York
State Division of Housing and Community Renewal on October 22,
1997.
18
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned thereunto duly authorized.
(Registrant): KNICKERBOCKER VILLAGE, INC.:
- -----------------------------------------------------------------
By (Signature and Title) :S/ROBERT GERSHON
- ------------------------------------------------------------------
ROBERT GERSHON, Director and Treasurer
Dated: March 27, 1998
- ----------------------
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
(Signature and Title) :S/IRENE PLETKA
- -------------------------------------------------------------------
IRENE PLETKA, Director and President
Dated: March 27, 1998
- ----------------------
(Signature and Title) :S/PETER PLETKA
- -------------------------------------------------------------------
PETER PLETKA, Vice President
Dated: March 27, 1998
- -----------------------
(Signature and Title) :S/MELVIN GERSHON
- -------------------------------------------------------------------
MELVIN GERSHON, Director and Secretary
Dated: March 27, 1998
- -----------------------
19
<PAGE>
KNICKERBOCKER VILLAGE, INC.
---------------------------
INDEX TO FINANCIAL STATEMENTS
-----------------------------
Independent Accountants Report F-2
Balance Sheets F-3 to F-4
Statements of Income and Retained Earnings,
Years Ended December 31, 1997 and 1996 F-5
Statements of Cash Flows,
Years Ended December 31, 1997 and 1996 F-6
Notes to Financial Statements F-7 to F-12
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
----------------------------
Board of Directors
Knickerbocker Village, Inc.
10 Monroe Street
New York, New York 10002
We have audited the accompanying balance sheets of Knickerbocker Village, Inc.,
as of December 31, 1997 and 1996, and the related statements of income and
retained earnings and cash flows for each of the years in the two-year period
ended December 31, 1997. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
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 financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the 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 financial statements referred to above present fairly, in
all material respects, the financial position of Knickerbocker Village, Inc., as
of December 31, 1997 and 1996, and the results of its operations and its cash
flows for each of the years in the two-year period ended December 31, 1997, in
conformity with generally accepted accounting principles.
February 17, 1998 Held Kranzler & Company
F-2
<PAGE>
KNICKERBOCKER VILLAGE, INC.
BALANCE SHEETS
AS OF DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
Assets 1997 1996
- ------------------------------------------------------- ----------- -----------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 2,479 $ 415
Accounts receivable (less allowance for
doubtful accounts of $ 282,000 in 1997
and $260,000 in 1996) 198,924 207,999
Interest and other receivables 34,601 14,365
Prepaid expenses and other current assets (Note 13) 1,378,917 1,513,503
Deferred tax asset, net (Note 8) 66,000 34,000
----------- -----------
Total Current Assets 1,680,921 1,770,282
----------- -----------
Special Funds And Deposits:
Funds for replacements, painting
and decorating (Notes 4 and 11) 173,956 115,975
Tenants' security deposits - contra 658,307 642,628
----------- -----------
Total Special Funds and Deposits 832,263 758,603
----------- -----------
Fixed Assets, At Cost: (Notes 2, 3, 5 and 6)
Land 3,273,281 3,273,281
Buildings and building equipment 15,748,935 15,086,968
----------- -----------
19,022,216 18,360,249
Less: Accumulated depreciation 11,431,398 10,898,301
----------- -----------
Net Fixed Assets 7,590,818 7,461,948
----------- -----------
Other Assets:
Deferred Tax Asset, Net (Note 8) 203,000 92,000
Other Assets 127,671 37,139
----------- -----------
330,671 129,139
----------- -----------
TOTAL ASSETS $10,434,673 $10,119,972
=========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-3
<PAGE>
KNICKERBOCKER VILLAGE, INC.
BALANCE SHEETS
AS OF DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
Liabilities And Stockholders' Equity 1997 1996
- --------------------------------------------------------- ----------- -----------
<S> <C> <C>
Current Liabilities
Cash overdraft $ 33,180 $ 0
Accounts payable and accrued expenses (Note 11) 1,770,709 1,894,506
Unearned rental income 25,122 82,973
Dividends payable (Note 7) 19,023 19,023
Income tax payable 44,123 0
Current portion of long-term debt (Note 5) 81,745 90,000
Current portion of capital lease obligation (Note 6) 8,406 0
----------- -----------
Total Current Liabilities 1,982,308 2,086,502
Tenants' Security Deposits - Contra 658,307 642,628
Other Liabilities (Note 11) 174,011 212,500
Long-Term Debt, less current portion (Note 5) 6,155,229 5,918,130
Capital Lease Obligation, less current portion (Note 6) 13,125 0
----------- -----------
Total Liabilities 8,982,980 8,859,760
----------- -----------
Commitments and Contingencies (Note 11)
Stockholders' Equity:
Limited dividend capital stock,
par value $2.15 per share,
Authorized - 348,837 shares;
issued and outstanding - 147,464 317,048 317,048
Retained earnings (Note 2) 1,134,645 943,164
----------- -----------
Total Stockholders' Equity 1,451,693 1,260,212
----------- -----------
Total Liabilities And Stockholders' Equity $10,434,673 $10,119,972
=========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-4
<PAGE>
KNICKERBOCKER VILLAGE, INC.
STATEMENTS OF INCOME AND RETAINED EARNINGS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Revenues:
Rentals (Note 12) $10,030,039 $9,564,139
Other income 9,555 14,138
----------- ----------
10,039,594 9,578,277
----------- ----------
Expenses:
Wages and related costs 2,350,485 2,243,192
Real estate taxes 816,819 790,794
Utilities 1,885,889 1,844,802
Maintenance, repairs and decorating 1,163,754 1,119,914
Depreciation and amortization 566,939 508,519
Mortgage and other interest 555,324 623,879
Management and administrative fee (Note 9) 945,491 923,873
Provision for doubtful accounts 52,043 88,000
Miscellaneous operating and general expenses 1,479,369 1,439,099
----------- ----------
9,816,113 9,582,072
----------- ----------
Income (loss) before income taxes 223,481 (3,795)
Provision for income taxes (Note 8) 32,000 38,000
----------- ----------
Net income (loss) 191,481 (41,795)
----------- ----------
Retained earnings at beginning of the year
As previously reported 943,164 891,959
Prior period adjustment (Note 2) 0 93,000
----------- ----------
As restated 943,164 984,959
----------- ----------
Retained earnings at end the year $ 1,134,645 $ 943,164
=========== ==========
Earnings per share $1.30 $(0.28)
=========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-5
<PAGE>
KNICKERBOCKER VILLAGE, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
------------ ----------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 191,481 $ (41,795)
Adjustments to reconcile net income to net
cash used in operating activities:
Depreciation and amortization 566,939 508,519
Provision for bad debts 52,043 88,000
Deferred income taxes (143,000) (54,000)
Changes in assets (increase) decrease:
Accounts receivable (42,968) (42,111)
Interest and other assets (20,236) (2,986)
Prepaid expenses 141,701 (45,226)
Other assets (124,374) (15,025)
Changes in liabilities increase (decrease):
Accounts payable and accrued expenses (79,676) 286,265
Unearned rental income (57,851) 40,107
Other liabilities (38,488) 212,500
----------- ---------
Net cash provided by operating activities 445,571 934,248
----------- ---------
Cash Flows From Investing Activities:
Interest earned on reserve fund investments (2,976) (6,835)
Capital expenditures (636,906) (995,235)
Contributions of cash from operations to replacement fund (866,441) (404,000)
Reimbursement of expenditures paid by housing company
from replacement fund 811,436 646,661
Contributions from sale of investments 0 (235,286)
Purchase of investments for replacement funds 0 0
Proceeds of investments from replacement funds 0 234,387
----------- ---------
Net cash used in investing activities (694,887) (760,308)
----------- ---------
Cash flows from financing activities:
Proceeds on refinanced mortgage 6,300,000 0
Payments on pre-existing mortgage debt (6,008,130) 0
Payments on long-term debt (63,026) (154,699)
Payments on capital lease obligation (10,645) 0
Proceeds from (payments of) bank overdraft 33,181 (18,826)
----------- ---------
Net cash provided by (used in) financing activities 251,380 (173,525)
----------- ---------
Net increase in cash 2,064 415
Cash at beginning of year 415 0
----------- ---------
Cash at end of year $ 2,479 $ 415
=========== =========
Supplemental Disclosures Of Cash Flow Information:
Cash paid during the years for:
Interest $ 555,000 $ 624,000
Income taxes 135,000 121,000
</TABLE>
Supplemental Schedule Of Noncash Investing and Financing Activities:
A capital lease obligation of $21,531 was incurred when the Company acquired
new equipment in 1997.
The accompanying notes are an integral part of the financial statements.
F-6
<PAGE>
KNICKERBOCKER VILLAGE, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
NOTE 1 - CORPORATE ORGANIZATION
----------------------
Knickerbocker Village, Inc. (the "Company"), is a public, limited dividend
housing company formed pursuant to the Housing Laws of the State of New
York, on September 5, 1933. The Company is regulated by the Division of
Housing and Community Renewal ("DHCR"), a New York State regulatory agency.
The Company is located in lower Manhattan and operates approximately 1,600
rental units ranging in size from studios through three bedroom apartments.
The Company requires one (1) month's rent as a security deposit on all
apartments.
NOTE 2 - PRIOR PERIOD ADJUSTMENT
-----------------------
The balance of retained earnings at January 1, 1996, has been restated from
amounts previously reported to reflect an increase of $93,000 ($0.63 per
share), resulting from a change in the Company's policy from expensing
appliances as purchased to capitalizing the appliances as fixed assets.
The change was made to conform with generally accepted accounting
principles.
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------
REVENUE RECOGNITION
-------------------
The Company recognizes revenue in the accounting period that corresponds to
the month for which rental income is billed. Rents received but not
recognized as revenue as of December 31, are recorded as unearned rental
income.
CASH AND CASH EQUIVALENTS
-------------------------
For the purposes of the statements of cash flows, the Company considers all
highly liquid debt instruments purchases with a maturity of three months or
less to be cash equivalents.
ALLOWANCE FOR DOUBTFUL ACCOUNTS
-------------------------------
Bad debts are provided for on the allowance method based on historical
experience and management's evaluation of outstanding rents receivable.
FIXED ASSETS
------------
Fixed assets consists primarily of building improvements and equipment and
are recorded at cost. Depreciation is provided for financial statement
purposes on the straight-line method, over the estimated useful lives of
the fixed asset, which range from 5 to 30 years. For federal income tax
purposes, depreciation is provided for on the straight-line and accelerated
methods.
Expenditures for maintenance and repairs are charged to operations as
incurred. Upon sale or retirement of property, the cost and accumulated
depreciation are removed from the respective accounts and any gain or loss
is reflected in operations for the year. Depreciation expense for the year
ended December 31, 1997 and 1996 was approximately $533,000 and $475,000,
respectively.
F-7
<PAGE>
KNICKERBOCKER VILLAGE, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
INCOME TAXES
------------
Deferred tax assets and liabilities reflect the tax consequences on future
years of differences between the tax bases of assets and liabilities, and
their financial reporting amounts, using enacted tax rates in effect for
the year in which the differences are expected to reverse.
CONCENTRATION OF CREDIT RISK
----------------------------
The Company places its cash and investments for its Replacement Fund (See
Note 4) with a high quality credit institution. At times such investments
may be in excess of FDIC insured limits.
INVESTMENTS
-----------
All investments in the replacement, painting and decorating fund (See Note
4) are available for sale and are carried at fair values.
ESTIMATES
---------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
RECLASSIFICATIONS
-----------------
Certain prior year balances have been reclassified to conform with current
year classifications.
FAIR VALUE OF FINANCIAL INSTRUMENTS
-----------------------------------
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments:
1. Cash and cash equivalents - The carrying amounts approximate fair value
because of the short maturity of these instruments.
2. Investments - Fair value approximates quoted market value.
3. Receivables - The carrying amount approximates fair value because of the
short maturity of these instruments.
4. Debt - The carrying amounts approximate fair value based on borrowing
rates currently available to the Company for bank loans with similar
terms.
F-8
<PAGE>
KNICKERBOCKER VILLAGE, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
IMPAIRMENT OF LONG-LIVED ASSETS
-------------------------------
In accordance with SFAS No. 121, "Accounting For the Impairment of Long-
Lived Assets and For Long-Lived Assets To Be Disposed Of", the Company
reviews it long-lived assets, including property and equipment, and
intangible assets for impairment whenever events or changes in
circumstances indicate that the carrying amount of the assets may not be
fully recoverable. To determine recoverability of its long-lived assets,
the Company evaluates the probability that future undiscounted net cash
flows will be less than the carrying amount of the assets. Impairment
costs, if any, are measured by comparing the carrying amount of the related
assets to their fair value.
NOTE 4 - REPLACEMENT, PAINTING AND DECORATING FUNDS
------------------------------------------
Maintenance of these funds is requested by the Commissioner of Housing and
Community Renewal of the State of New York. These funds were comprised of
the following at December 31, 1997:
1997 1996
-------- --------
Cash $173,956 $115,975
-------- --------
$173,956 $115,975
======== ========
NOTE 5 - LONG-TERM DEBT
--------------
On January 31, 1997, the Company entered into an extension and modification
agreement with The Greater New York Savings Bank, now known as Astoria
Federal Savings Bank (the "Bank") for the principal amount of $6,300,000.
The mortgage is payable in monthly installments of $50,729, inclusive of
interest at the rate of 8 1/2% per annum, and is due on February 1, 2007.
On the maturity date, the Company may pay the remaining principal balance,
or extend the term of the mortgage for an additional five (5) years. The
mortgage is collateralized by land, buildings and boilers. The aggregate
maturities for long-term debt for the five years after December 31, 1997
are approximately $82,000, $89,000, $97,000, $105,000 and $115,000,
respectively.
NOTE 6 - CAPITAL LEASE OBLIGATIONS
-------------------------
The Company leases certain equipment under long term leases and has the
option to purchase the equipment at a nominal cost at the termination of
the leases. Included in buildings and building equipment are the following
assets held under capital leases:
1997 1996
------- -------
Building equipment $34,961 $ 0
Less accumulated depreciation 4,368 0
------- --------
$30,593 $ 0
======= ========
F-9
<PAGE>
KNICKERBOCKER VILLAGE, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
Future minimum payments for assets under capital leases are as follows at
December 31, 1997
Year Ending December 31
-----------------------
1998 $10,774
1999 10,774
2000 6,075
-------
Total minimum lease payments 27,623
Less amounts representing interest 6,092
-------
Present value of net minimum lease payments 21,531
Less current portion 8,406
-------
Long-term obligation $13,125
=======
NOTE 7 - DIVIDENDS PAYABLE AND CAPITAL STOCK
-----------------------------------
The holders of the Company's capital stock cannot at any time receive, in
repayment of their investment, any sums in excess of the par value of the
stock together with cumulative dividends at the rate of 6% of par value per
annum (without interest). Any surplus in excess of such amounts upon
dissolution reverts to the public authorities.
Cumulative dividends unpaid to December 31, 1997 amounted to $551,666 or
approximately $3.74 per share and unpaid to December 31, 1996 amounted to
$532,643 or approximately $3.61 per share. Dividends amounting to $19,023
were declared during 1979, but were not paid as of December 31, 1997. Such
dividends were approved by the DHCR. No dividends were declared or paid in
1997 or 1996.
NOTE 8 - INCOME TAXES
------------
The provision for income taxes for the year ended December 31, 1997 and
1996 consist of the following:
1997 1996
--------- --------
Current Taxes
--------------
Federal $ 137,000 $ 66,000
New York City 38,000 26,000
--------- --------
Total $ 175,000 $ 92,000
--------- --------
Deferred Taxes
--------------
Federal $(116,000) $(40,000)
New York City (27,000) (14,000)
--------- --------
Total $(143,000) $(54,000)
--------- --------
Provision For Income Taxes $ 32,000 $ 38,000
========= ========
F-10
<PAGE>
KNICKERBOCKER VILLAGE, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
The provision for income taxes differs from amounts computed at statutory
rates as follows:
1997 1996
--------- -------
Federal income taxes at statutory rate $ 77,000 $ 0
New York City corporation tax -
net of federal benefit 11,000 14,000
Other, net (56,000) 24,000
-------- -------
Total $ 32,000 $38,000
======== =======
Deferred income taxes reflect the net 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. At
December 31, 1997, the net deferred tax assets of $269,000 and $126,000,
respectively were included in the Company's balance sheets as follows:
1997 1996
---------- ----------
Deferred tax asset, net - Current $ 66,000 $ 34,000
Deferred tax asset, net - Long term 203,000 92,000
--------- ---------
Deferred tax asset, net $ 269,000 $ 126,000
========= =========
Significant components of the Company's net deferred tax asset at December
31, 1997 are as follows:
1997 1996
--------- ---------
Tax effects of:
Accounts receivable $ 121,000 $ 104,000
Unearned rental income 11,000 33,000
Buildings and building equipment 407,000 369,000
--------- ---------
Gross deferred tax asset 539,000 506,000
Valuation allowance (270,000) (380,000)
--------- ---------
Net deferred tax asset $ 269,000 $ 126,000
========= =========
Management believes that a valuation allowance is appropriate given the
current estimates of future taxable income, as well as consideration of
available tax planning strategies. If the Company is unable to generate
sufficient taxable income in the future through operating results,
increases in the valuation allowance will be required through a charge to
expense. However, if the Company achieves profitability to utilize a
greater portion of the deferred tax asset, the valuation allowance will be
reduced through a credit to income. The net change in valuation allowance
for the years ended December 31, 1997 and 1996 was a decrease of $110,000
and an increase of $52,000, respectively.
NOTE 9 - MANAGEMENT FEE
--------------
The management fee, set by DHCR, was paid to Cherry Green Property Corp.,
(Cherry Green), the owner of approximately 95% of the outstanding shares of
the Company. Such fee is reviewed and may be adjusted annually, effective
July 1 of each year, by the DHCR.
F-11
<PAGE>
KNICKERBOCKER VILLAGE, INC
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
On October 24, 1996 and October 17, 1997 the DHCR approved increases in the
management fee of 2.75% effective July 1, 1996 and 2.44% effective July 1,
1997, respectively.
NOTE 10- PENSION PLAN
------------
Certain employees of the Company are covered under a union sponsored,
multi-employer defined benefit pension plan. This plan is not administered
by the Company and contributions are determined by the union. The
Company's contributions for this plan was approximately $71,000 for the
years ended December 31, 1997 and 1996, respectively.
NOTE 11- COMMITMENTS AND CONTINGENCIES
-----------------------------
As of December 31, 1997, the Company was in arrears on its contributions as
requested by DHCR to its' special fund for replacements, painting and
decorating in the amount of approximately $92,000 (Note 4). The Company,
in accordance with the Modification Agreement with its bank dated January
31, 1997 (Note 5), has made a commitment to complete asbestos abatement
work and lead paint remediation work of approximately $425,000 in 1997 and
1998. Remaining costs of approximately $389,000 have been accrued in the
financial statements as of December 31, 1997. The costs of any additional
asbestos abatement or lead paint remediation, if necessary, in excess of
the amounts accrued at December 31, 1997, can not be determined at this
time.
NOTE 12- RENTAL INCOME
-------------
During April 1996, the Company received a two step rent increase, which was
approved by the DHCR. The first increase of approximately 5.5% was
effective June 1, 1996 and the second increase of approximately 5.3% was
effective June 1, 1997.
NOTE 13- PREPAID EXPENSES AND OTHER CURRENT ASSETS
-----------------------------------------
Prepaid expenses and other current assets in the accompanying balance sheet
at December 31, 1997 are as follows:
1997 1996
---------- --------
Escrow Account $ 242,461 $277,083
Prepaid:
Insurance 514,911 514,696
Water and Sewer 112,039 202,854
Real Estate Taxes 401,775 415,687
Supplies 90,571 76,179
Federal Income Tax 0 1,607
NYC Corp. Tax 0 1,788
Interest 15,228 0
Expenses - Other 1,932 23,609
---------- --------
TOTAL $1,378,917
==========
F-12
<PAGE>
Exhibit 10.1
Whereas, the parties have originally entered into a Contract for Managing Agents
as of July 1, 1983 with subsequent extension to June 30, 1997, and wish to
------------
extend further the Contract, it is agreed that:
1. The contract is extended for twelve (12) months, from July 1, 1997 to
June 30, 1998.
2. Article 5.1(a) of the Owner-Agent Agreement is amended as follows:
MANAGING AGENT FEE - $ 70,379 per month. This amount
-----------
represents the sum of:
$ 63,229 the Project's Base Rate: plus
-----------
$ 7,150 the Project's Administrative Expense Fee.
-----------
3. Article 5.1(e) of the Owner-Agent Agreement is amended as follows:
SITE MANAGER REIMBURSEMENT FOR THE YEAR ENDING JUNE 30, 1998 IS
$ 58,270.57 PER YEAR PAYABLE IN EQUAL MONTLY INSTALLMENTS, IN ACCORDANCE
-----------
WITH THE ATTACHED SCHEDULE OF SALARY AND FRINGE BENEFITS.
4. The Management Plan [_] has [X] has not been amended. If amended, the
pages on which changes have beenn made are attached.
5. Other (Use attachments if necessary).__________________________________
================================================================================
WE HEREBY CERTIFY THAT THE INFORMATION LISTED BELOW IS TRUE AND CORRECT.
a. There is a Fidelity Bond for at least 25% of the annual rent
roll insuring both the Owner and the Managing Agent.
b. There is a current Real Estate Broker's License in the name of
the Managing Agent.
c. The Site Manager was hired on January, 1987 and [X] is
-----------------
currently certified by National Assn Of Home Builders as RAM
-------------------------------------
(Name of Organization)
or [_] is not certified.
OWNER: Knickerbocker Village, Inc. AGENT: Cherry Green Property Corp.
-------------------------------- -----------------------------
/s/ Robert Gershon 10/8/97 /s/ Robert Gershon 10/8/97
- -------------------------------------- -----------------------------------
Signature Date Signature Date
Robert Gershon Robert Gershon
Treasurer vice-President
- -------------------------------------- -----------------------------------
Name/Title (Please Type) Name/Title (Please Type)
================================================================================
FOR DHCR USE ONLY
[X] Accepted [_] Amended Development Knickerbocker Village
---------------------
By [ /S/ ] Date 10/22/97 DHCR Number HC-9
-------------------------- ------------- ----
================================================================================
HM-184 (4/97) MASAT (Ext.)
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
KNICKERBOCKER VILLAGE INC. AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 2,479
<SECURITIES> 0
<RECEIVABLES> 480,924
<ALLOWANCES> 282,000
<INVENTORY> 0
<CURRENT-ASSETS> 1,680,921
<PP&E> 7,590,818
<DEPRECIATION> 533,097
<TOTAL-ASSETS> 10,434,673
<CURRENT-LIABILITIES> 1,982,307
<BONDS> 6,155,229
0
0
<COMMON> 317,048
<OTHER-SE> 1,134,645
<TOTAL-LIABILITY-AND-EQUITY> 10,434,673
<SALES> 10,030,039
<TOTAL-REVENUES> 10,039,594
<CGS> 0
<TOTAL-COSTS> 9,816,113
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 555,324
<INCOME-PRETAX> 223,481
<INCOME-TAX> 32,000
<INCOME-CONTINUING> 191,481
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 191,481
<EPS-PRIMARY> 1.30
<EPS-DILUTED> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
KNICKERBOCKER VILLAGE INC. AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS
</LEGEND>
<RESTATED>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 565,888
<ALLOWANCES> 312,000
<INVENTORY> 0
<CURRENT-ASSETS> 1,779,544
<PP&E> 17,365,014
<DEPRECIATION> 10,423,499
<TOTAL-ASSETS> 9,782,373
<CURRENT-LIABILITIES> 1,843,654
<BONDS> 6,008,130
317,048
0
<COMMON> 0
<OTHER-SE> 984,959
<TOTAL-LIABILITY-AND-EQUITY> 9,782,373
<SALES> 9,307,966
<TOTAL-REVENUES> 9,345,599
<CGS> 0
<TOTAL-COSTS> 9,332,546
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 83,298
<INTEREST-EXPENSE> 638,146
<INCOME-PRETAX> 13,053
<INCOME-TAX> 3,702
<INCOME-CONTINUING> 9,351
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,351
<EPS-PRIMARY> 0.06
<EPS-DILUTED> 0
</TABLE>
