<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark FORM 10-QSB
One) -----------
___
X QUARTERLY REPORT UNDER SECTION 13 OR 15 (D)
___ OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE THREE MONTH PERIOD ENDED MARCH 31, 1999
[_]
TRANSITION REPORT UNDER SECTION 13 OR 15 (D)
OF THE EXCHANGE ACT
For the period of transition from _______________ to _______________
Commission File No. 0-1322
KNICKERBOCKER VILLAGE, INC.
---------------------------
(Exact name of registrant as specified in its Charter)
NEW YORK 13-0924285
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
10 Monroe Street, New York, N.Y. 10002
-------------------------------- -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212) 227-0955
Indicate by checkmark 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 period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
------ -----
The number of shares outstanding of each of the issuer's classes of common
stock, as of the close of the period covered by this report is 147,464, $2.15
par value.
Total number of sequentially numbered pages - 14
No exhibits filed.
<PAGE>
FORM 10-QSB
KNICKERBOCKER VILLAGE, INC.
BALANCE SHEET
AS OF MARCH 31, 1999
(UNAUDITED)
Assets
------
Current Assets:
Cash and cash equivalents $ 645,856
Accounts receivable (less allowance for
doubtful accounts of $304,000) 125,208
Interest and other receivables 181,020
Prepaid expenses and other current assets 1,028,509
Deferred tax asset, net 85,000
-----------
Total Current Assets 2,065,593
-----------
Special Funds And Deposits:
Funds for replacements, painting
and decorating 435,024
Tenants' security deposits - contra 677,759
-----------
Total Special Funds and Deposits 1,112,783
-----------
Fixed Assets, At Cost:
Land 3,273,281
Buildings and building equipment 16,309,134
-----------
19,582,415
Less: Accumulated depreciation 12,095,306
-----------
Net Fixed Assets 7,487,109
-----------
Other Assets:
Deferred tax asset, net 260,000
Other assets 110,246
-----------
370,246
-----------
TOTAL ASSETS $11,035,731
===========
In the opinion of management, the accompanying financial statements of
Knickerbocker Village, Inc. as at March 31, 1999 and for the related periods
then ended include all adjustments necessary in order to make the financial
statements not misleading.
2
<PAGE>
FORM 10-QSB KNICKERBOCKER VILLAGE, INC.
BALANCE SHEET
AS OF MARCH 31, 1999
(UNAUDITED)
Liabilities And Stockholders' Equity
------------------------------------
Current Liabilities
Accounts payable and accrued expenses $ 2,047,809
Unearned rental income 84,127
Dividends payable 19,023
Income taxes payable 137,404
Current portion of long-term debt 90,875
Current portion of capital lease obligation 8,406
-----------
Total Current Liabilities 2,387,644
Tenants' security deposits - contra 677,759
Other liabilities 170,707
Long-Term Debt, less current portion 6,042,813
Capital lease obligation, less current portion 2,617
-----------
Total Liabilities 9,281,540
-----------
Commitments and Contingencies
Stockholders' Equity:
Limited dividend capital stock,
par value $2.15 per share,
Authorized - 348,837 shares;
issued and outstanding - 147,464 317,048
Retained earnings 1,437,143
-----------
Total Stockholders' Equity 1,754,191
-----------
Total Liabilities And Stockholders' Equity $11,035,731
===========
In the opinion of management, the accompanying financial statements of
Knickerbocker Village, Inc. as at March 31, 1999 and for the related periods
then ended include all adjustments necessary in order to make the financial
statements not misleading.
3
<PAGE>
FORM 10-QSB
KNICKERBOCKER VILLAGE, INC.
STATEMENTS OF NET INCOME, COMPREHENSIVE INCOME AND RETAINED EARNINGS
FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 1998
(UNAUDITED)
1999 1998
---------- ----------
Revenues:
Rentals $2,602,972 $2,521,389
Other income 4,429 1,977
---------- ----------
2,607,401 2,523,366
---------- ----------
Expenses:
Wages and related costs 599,752 599,478
Real estate taxes 193,462 200,888
Utilities 381,505 397,944
Maintenance, repairs and decorating 240,102 279,865
Depreciation and amortization 134,461 134,012
Mortgage and other interest 136,477 137,924
Management and administrative fee 237,815 227,714
Provision for doubtful accounts 3,000 0
Miscellaneous operating and general expenses 385,273 378,140
---------- ----------
2,311,847 2,355,965
---------- ----------
Income before income taxes 295,554 167,401
Provision for income taxes 137,000 95,000
---------- ----------
Net income and comprehensive income 158,554 72,401
---------- ----------
Retained earnings at beginning of the period 1,278,589 1,134,645
---------- ----------
Retained earnings at end of the period $1,437,143 $1,207,046
========== ==========
Earnings per share $1.08 $.49
========== ==========
In the opinion of management, the accompanying financial statements of
Knickerbocker Village, Inc. as at March 31, 1999 and for the related periods
then ended include all adjustments necessary in order to make the financial
statements not misleading.
4
<PAGE>
FORM 10-QSB
KNICKERBOCKER VILLAGE, INC.
STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 1998
(UNAUDITED)
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 158,554 $ 72,401
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 134,461 134,012
Provision for bad debts 3,000 0
Deferred income taxes (25,000) (32,000)
Changes in assets (increase) decrease:
Rents receivable 14,277 29,498
Interest and other receivables (16,969) (16,155)
Prepaid expenses and other current assets 648,281 85,084
Changes in liabilities increase (decrease):
Accounts payable and accrued expenses (99,873) (105,738)
Unearned rental income 56,631 95,636
Other liabilities 0 (77,352)
--------- ---------
Net cash provided by operating activities 873,362 185,386
--------- ---------
Cash Flows From Investing Activities:
Interest earned on reserve fund investments (1,276) (756)
Capital expenditures (19,389) (62,453)
Contributions of cash from operations to replacement fund (290,580) (188,000)
Reimbursement of expenditures paid by housing company
from replacement fund 14,425 134,945
--------- ---------
Net cash used in investing activities (296,820) (116,264)
--------- ---------
Cash flows from financing activities:
Payments on long-term debt (21,541) (19,792)
Payments on capital lease obligation (2,101) (2,101)
Net cash used in financing activities (23,642) (21,893)
--------- ---------
Net increase in cash 552,900 47,229
Cash at beginning of period 92,956 2,479
--------- ---------
Cash at end of period $ 645,856 $ 49,708
========= =========
Supplemental Disclosures Of Cash Flow Information:
Cash paid during the period for:
Interest $ 130,000 $ 138,000
Income taxes 25,000 9,900
</TABLE>
In the opinion of management, the accompanying financial statements of
Knickerbocker Village, Inc. as at March 31, 1999 and for the related periods
then ended include all adjustments necessary in order to make the financial
statements not misleading.
5
<PAGE>
KNICKERBOCKER VILLAGE, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1999 AND 1998
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 - 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 March 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 assets, 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 period. Depreciation expense was
approximately $130,000 for the three months ended March 31, 1999 and 1998.
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.
6
<PAGE>
KNICKERBOCKER VILLAGE, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1999 AND 1998
CONCENTRATION OF CREDIT RISK
----------------------------
The Company places its cash and investments for its Replacement Fund (See
Note 3) with a high quality credit institution. At times such investments
may be in excess of FDIC insured limits.
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.
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.
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 its 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.
COMPREHENSIVE INCOME
--------------------
The company adopted SFAS No. 130, "Reporting Comprehensive Income" in 1998.
There are no items of other comprehensive income as defined in the
pronouncement.
7
<PAGE>
KNICKERBOCKER VILLAGE, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1999 AND 1998
NOTE 3 - REPLACEMENT, PAINTING AND DECORATING FUNDS
------------------------------------------
Maintenance of these funds is requested by the Commissioner of the Housing
and Community Renewal of the State of New York. These funds were comprised
of the following at March 31, 1999:
Cash $435,024
========
NOTE 4 - LONG-TERM DEBT
--------------
On January 30, 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 March 31, 1999 are
approximately $91,000 (2000); $99,000 (2001); $108,000 (2002); $117,000
(2003); $128,000 (2004); $5,592,000 (thereafter).
NOTE 5 - 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:
Building equipment $34,961
Less accumulated depreciation 9,828
-------
$25,133
=======
Future minimum payments for assets under capital leases are as follows at
March 31, 1999
Year Ending March 31
--------------------
1999 $10,775
2000 3,380
-------
Total minimum lease payments 14,155
Less amounts representing interest 3,132
-------
Present value of net minimum lease payments 11,023
Less current portion 8,406
-------
Long-term obligation $ 2,617
=======
8
<PAGE>
KNICKERBOCKER VILLAGE, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1999 AND 1998
NOTE 6 - 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 March 31, 1999 amounted to $570,659 or
approximately $3.87 per share and unpaid to March 31, 1998 amounted to
$551,666 or approximately $3.74 per share. Dividends amounting to $19,023
were declared during 1979, but were not paid as of March 31, 1999. Such
dividends were approved by the DHCR. No dividends were declared or paid in
1999 or 1998.
NOTE 7 - INCOME TAXES
------------
The provision for income taxes for the year ended March 31, 1999 and 1998
consist of the following:
1999 1998
---- ----
Current Taxes
--------------
Federal $126,000 $ 99,000
New York City 36,000 28,000
-------- --------
Total $162,000 $127,000
-------- --------
Deferred Taxes
--------------
Federal $(20,000) $(25,000)
New York City (5,000) (7,000)
-------- --------
Total $(25,000) $(32,000)
-------- --------
Provision For Income Taxes $137,000 $ 95,000
======== ========
The provision for income taxes differs from amounts computed at statutory
rates as follows:
1999 1998
-------- --------
Federal income taxes at statutory rate $100,000 $ 57,000
New York City corporation tax -
net of federal benefit 33,000 10,000
Other, net 4,000 28,000
-------- --------
Total $137,000 $ 95,000
======== ========
9
<PAGE>
KNICKERBOCKER VILLAGE, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1999 AND 1998
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 March
31, 1999 the net deferred tax assets of $345,000 was included in the
Company's balance sheet as follows:
Deferred tax asset, net - Current $ 85,000
Deferred tax asset, net - Long term 260,000
---------
Deferred tax asset, net $ 345,000
=========
Significant components of the Company's net deferred tax asset at March 31,
1999 is as follows:
Tax effects of:
Accounts receivable $ 130,000
Unearned rental income 39,000
Buildings and building equipment 519,000
---------
Gross deferred tax asset 688,000
Valuation allowance (343,000)
---------
Net deferred tax asset $ 345,000
=========
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 three months ended March 31, 1999 was an increase of $23,000.
NOTE 8 - 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.
On October 21, 1998 the DHCR approved an increase in the management fee of
1.3% and an increase of 4.2% due to an amendment to the contract, effective
July 1, 1998.
NOTE 9- 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 $20,000 and $18,000
for the three months ended March 31, 1999 and 1998, respectively.
10
<PAGE>
KNICKERBOCKER VILLAGE, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1999 AND 1998
NOTE 10- COMMITMENTS AND CONTINGENCIES
-----------------------------
The Company, in accordance with the Modification Agreement with its Bank
dated January 31, 1997 (Note 4), 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 $383,000 have been accrued
in the financial statements as of March 31, 1999. The costs of any
additional asbestos abatement or lead paint remediation, if necessary, in
excess of the amounts accrued at March 31, 1999, can not be determined at
this time.
NOTE 11- RENTAL INCOME
-------------
During December 1998, the Company received a two step rent increase, which
was approved by the DHCR. The first increase of approximately 3.3% became
effective February 1, 1999. The second increase of approximately 3.2% will
become effective on February 1, 2000.
NOTE 12- PREPAID EXPENSES AND OTHER CURRENT ASSETS
-----------------------------------------
Prepaid expenses and other current assets in the accompanying balance sheet
at March 31, 1999 are as follows:
Escrow Account $ 285,083
Prepaid:
Insurance 438,881
Real Estate Taxes 193,462
Supplies 95,011
Interest 10,782
Expenses - Other 5,290
----------
TOTAL $1,028,509
==========
11
<PAGE>
FORM 10-QSB
KNICKERBOCKER VILLAGE, INC
MANAGEMENTS DISCUSSION AND ANALYSIS OR
PLAN OF OPERATION
MARCH 31, 1999
(UNAUDITED)
Liquidity -
On January 30, 1997, the Registrant entered into an extension and modification
agreement with Astoria Federal Savings (formerly known as The Greater New York
Savings Bank) (the "Bank"), which increased the principal amount of the
Registrant's mortgage payable to $6,300,000 (see Note 4 to the financial
statements, page 8). As a result of this mortgage extension and modification
agreement, the Registrant's annual debt service will be reduced by approximately
$155,000 per annum, effective as of March 1, 1997.
During December 1998, the Company received a two step rent increase, which was
approved by the DHCR. The first increase of approximately 3.3% became effective
February 1, 1999. The second increase of approximately 3.2% will become
effective on February 1, 2000.
Capital resources - The Registrant has set aside funds for capital improvements
and repairs amounting to approximately $435,000 as of March 31, 1999.
Results of operations - During the three months ended March 31, 1999, as
compared to the three months ended March 31, 1998, total revenues increased by
approximately $84,000 or approximately 3.3%, due primarily to the rent increase
referred to above, offset by decreases in other charges to tenants.
Operating expenses decreased by approximately $45,000 or approximately 2.0%
during the three months ended March 31, 1999 as compared to the three months
ended March 31, 1998. This is primarily attributable to decreases in utilities,
maintenance, repairs and decorating expense and real estate taxes, offset by
increases in miscellaneous operating and general expenses. Utilities decreased
by approximately $16,000 or approximately 4.1% primarily due to the mild winter
and low oil prices. Maintenance, repairs and decorating decreased by
approximately $41,000 or approximately 14.6%, primarily due to decreases in
plumbing, structural repairs and painting. Real estate taxes decreased by
approximately $7,000 or approximately 3.7% due to an decrease in the property's
assessed value for tax year ended June 30, 1999. Miscellaneous operating and
general expenses increased by approximately $7,000 or approximately 1.9%, due to
increases in security services offset by decreases in professional fees. The
provision for income taxes increased by approximately $42,000 or approximately
44.2% primarily due to an increase in income before taxes and changes in the
Registrant's valuation allowance (see Note 7 to the financial statements, pages
9 and 10).
12
<PAGE>
PART II. OTHER INFORMATION
----------------------------
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
None.
(b) Reports of Form 8-K
None.
13
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
KNICKERBOCKER VILLAGE, INC.:
Dated: May 13, 1999 By: /s/ ROBERT GERSHON
---------------------------------
ROBERT GERSHON,
Vice President and Treasurer
Dated: May 13, 1999 By: /s/ MELVIN GERSHON
---------------------------------
MELVIN GERSHON
Secretary
14
<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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 645,856
<SECURITIES> 0
<RECEIVABLES> 429,208
<ALLOWANCES> 304,000
<INVENTORY> 0
<CURRENT-ASSETS> 2,065,593
<PP&E> 7,487,109
<DEPRECIATION> 130,976
<TOTAL-ASSETS> 11,035,731
<CURRENT-LIABILITIES> 2,387,644
<BONDS> 6,042,813
317,048
0
<COMMON> 0
<OTHER-SE> 1,437,143
<TOTAL-LIABILITY-AND-EQUITY> 11,035,731
<SALES> 2,602,972
<TOTAL-REVENUES> 2,607,401
<CGS> 0
<TOTAL-COSTS> 2,311,847
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 136,477
<INCOME-PRETAX> 295,554
<INCOME-TAX> 137,000
<INCOME-CONTINUING> 158,554
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 158,554
<EPS-PRIMARY> 1.08
<EPS-DILUTED> 0
</TABLE>
