<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 SIX MONTH PERIOD ENDED JUNE 30, 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 JUNE 30, 1999
(UNAUDITED)
Assets
------
Current Assets:
Cash and cash equivalents $ 721,944
Accounts receivable (less allowance for
doubtful accounts of $304,000) 140,418
Interest and other receivables 8,513
Prepaid expenses and other current assets 1,091,067
Deferred tax asset, net 84,000
-----------
Total Current Assets 2,045,942
-----------
Special Funds And Deposits:
Funds for replacements, painting
and decorating 621,491
Tenants' security deposits - contra 679,639
-----------
Total Special Funds and Deposits 1,301,130
-----------
Fixed Assets, At Cost:
Land 3,273,281
Buildings and building equipment 16,364,874
-----------
19,638,155
Less: Accumulated depreciation 12,226,772
-----------
Net Fixed Assets 7,411,383
-----------
Other Assets:
Deferred Tax Asset, Net 268,000
Other Assets 106,761
-----------
374,761
-----------
TOTAL ASSETS $11,133,216
===========
In the opinion of management, the accompanying financial statements of
Knickerbocker Village, Inc. as at June 30, 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 JUNE 30, 1999
(UNAUDITED)
Liabilities And Stockholders' Equity
------------------------------------
Current Liabilities
Accounts payable and accrued expenses $ 2,194,491
Unearned rental income 85,394
Dividends payable 19,023
Income tax payable 143,800
Current portion of long-term debt 92,819
Current portion of capital lease obligation 7,814
-----------
Total Current Liabilities 2,543,341
Tenants' Security Deposits - Contra 679,639
Other Liabilities 5,055
Long-Term Debt, less current portion 6,018,866
Capital Lease Obligation, less current portion 1,108
-----------
Total Liabilities 9,248,009
-----------
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 1,568,159
-----------
Total Stockholders' Equity 1,885,207
-----------
Total Liabilities And Stockholders' Equity $11,133,216
===========
In the opinion of management, the accompanying financial statements of
Knickerbocker Village, Inc. as at June 30, 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 SIX MONTHS ENDED JUNE 30, 1999 AND 1998
(UNAUDITED)
1999 1998
---------- ----------
Revenues:
Rentals $5,242,797 $5,058,571
Other income 13,315 4,996
---------- ----------
5,256,112 5,063,567
---------- ----------
Expenses:
Wages and related costs 1,223,435 1,192,336
Real estate taxes 384,130 402,167
Utilities 786,861 800,179
Maintenance, repairs and decorating 532,320 524,412
Depreciation and amortization 269,411 269,213
Mortgage and other interest 272,491 275,785
Management and administrative fee 475,932 454,318
Provision for doubtful accounts 3,078 0
Miscellaneous operating and general expenses 782,878 745,325
---------- ----------
4,730,536 4,663,735
---------- ----------
Income before income taxes 525,576 399,832
Provision for income taxes 236,000 187,000
---------- ----------
Net income and comprehensive income 289,576 212,832
---------- ----------
Retained earnings at beginning of the period 1,278,583 1,134,645
---------- ----------
Retained earnings at end of the period $1,568,159 $1,347,477
========== ==========
Earnings per share $ 1.96 $ 1.44
========== ==========
In the opinion of management, the accompanying financial statements of
Knickerbocker Village, Inc. as at June 30, 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 SIX MONTHS ENDED JUNE 30, 1999 AND 1998
(UNAUDITED)
<TABLE>
<CAPTION>
1999 1998
----------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 289,576 $ 212,832
Adjustments to reconcile net income to net
cash used in operating activities:
Depreciation and amortization 269,411 269,213
Provision for bad debts 3,078 0
Deferred income taxes (32,000) (33,000)
Changes in assets (increase) decrease:
Rents Receivable (1,011) 35,397
Interest and other receivables 155,538 11,849
Prepaid expenses and other current assets 585,723 92,136
Changes in liabilities increase (decrease):
Accounts payable and accrued expenses 53,200 (217,682)
Unearned rental income 57,898 44,849
Other liabilities (165,652) (77,790)
---------- ---------
Net cash provided by operating activities 1,215,761 337,804
---------- ---------
Cash Flows From Investing Activities:
Interest earned on reserve fund investments (3,441) (2,061)
Capital expenditures (75,129) (172,169)
Contributions of cash from operations to replacement fund (519,450) (395,000)
Reimbursement of expenditures paid by housing company
from replacement fund 58,993 236,973
---------- ---------
Net cash used in investing activities (539,027) (332,257)
---------- ---------
Cash flows from financing activities:
Payments on long-term debt (43,544) (40,008)
Payments on capital lease obligation (4,202) (4,202)
Bank overdraft 62,355
---------- ---------
Net cash provided by (used in) financing activities (47,746) 18,145
---------- ---------
Net increase in cash 628,988 23,692
Cash at beginning of period 92,956 2,479
---------- ---------
Cash at end of period $ 721,944 $ 26,171
========== =========
Supplemental Disclosures Of Cash Flow Information:
Cash paid during the period for:
Interest $ 260,000 $ 264,000
Income taxes 124,000 70,000
</TABLE>
In the opinion of management, the accompanying financial statements of
Knickerbocker Village, Inc. as at June 30, 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
JUNE 30, 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 June 30, 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 $263,000 for the six months ended June 30, 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
JUNE 30, 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
for the years ended December 31, 1998 and 1997. There are no items of other
comprehensive income as defined in the pronouncement.
7
<PAGE>
KNICKERBOCKER VILLAGE, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 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 June 30, 1999:
Cash $ 621,491
=========
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 June 30, 1999 are
approximately $93,000 (2000); $101,000 (2001); $110,000 (2002); $120,000
(2003); $130,000 (2004); $5,558,000 (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
June 30, 1999
Year Ending June 30
-------------------
1999 $ 9,972
2000 1,489
-------
Total minimum lease payments 11,461
Less amounts representing interest 2,539
-------
Present value of net minimum lease payments 8,922
Less current portion 7,814
-------
Long-term obligation $ 1,108
=======
8
<PAGE>
KNICKERBOCKER VILLAGE, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 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 June 30, 1999 amounted to $570,689 or
approximately $3.87 per share and unpaid to June 30, 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 June 30, 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 June 30, 1999 and 1998
consist of the following:
<TABLE>
<CAPTION>
1999 1998
-------------- ----------
Current Taxes
-------------
<S> <C> <C>
Federal $208,000 $171,000
New York City 60,000 49,000
-------- --------
Total $268,000 $220,000
-------- --------
Deferred Taxes
--------------
Federal $(26,000) $(26,000)
New York City (6,000) (7,000)
-------- --------
Total $(32,000) $(33,000)
-------- --------
Provision For Income Taxes $236,000 $187,000
======== ========
The provision for income taxes differs from amounts computed at statutory rates as follows:
1999 1998
-------- --------
Federal income taxes at statutory rate $178,000 $135,000
New York City corporation tax -
net of federal benefit 46,000 23,000
Other, net 12,000 29,000
-------- --------
Total $236,000 $187,000
======== ========
</TABLE>
9
<PAGE>
KNICKERBOCKER VILLAGE, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 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 June
30, 1999 the net deferred tax assets of $352,000 was included in the
Company's balance sheet as follows:
Deferred tax asset, net - Current $ 84,000
Deferred tax asset, net - Long term 268,000
---------
Deferred tax asset, net $ 352,000
=========
Significant components of the Company's net deferred tax asset at June 30,
1999 is as follows:
Tax effects of:
Accounts receivable $ 131,000
Unearned rental income 36,000
Buildings and building equipment 536,000
---------
Gross deferred tax asset 703,000
Valuation allowance (351,000)
---------
Net deferred tax asset $ 352,000
=========
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 six months ended June 30, 1999 was an increase of $31,000.
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 $39,000 and $36,000
for the six months ended June 30, 1999 and 1998, respectively.
10
<PAGE>
KNICKERBOCKER VILLAGE, INC
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1999 AND 1998
NOTE 10- COMMITMENTS AND CONTINGENCIES
-----------------------------
The Company, in accordance with the Modification Agreement with its Bank
dated January 30, 1997 (Note 4), has made a commitment to complete asbestos
abatement work and lead paint remediation work of approximately $425,000.
Remaining costs of approximately $218,000 have been accrued in the
financial statements as of June 30, 1999. The costs of any additional
asbestos abatement or lead paint remediation, if necessary, in excess of
the amounts accrued at June 30, 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 June 30, 1999 is as follows:
Escrow Account $ 257,326
Prepaid:
Insurance 286,821
Real Estate Taxes 432,268
Supplies 95,011
Interest 5,391
Expenses - Other 14,250
----------
TOTAL $1,091,067
==========
11
<PAGE>
FORM 10-QSB
KNICKERBOCKER VILLAGE, INC
MANAGEMENTS DISCUSSION AND ANALYSIS OR
PLAN OF OPERATION
JUNE 30,1999
(UNAUDITED)
As of June 30, 1999, the Registrant has a working capital deficit of
approximately $497,000. 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 $621,000 as of June 30,1999.
Results of operations - During the six months ended June 30,1999, as compared to
the six months ended June 30, 1998, total revenues increased by approximately
$192,000 or approximately 3.8%, due primarily to the rent increase referred to
above.
Operating expenses decreased by approximately $67,000 or approximately 1.4%
during the six months ended June 30, 1999 as compared to the six months ended
June 30, 1998. This is primarily attributable to increases in wages and related
costs, maintenance, repairs and decorating expense and miscellaneous operating
and general expenses offset by utilities and real estate taxes. Wages and
related costs increased by approximately $31,000 or approximately 2.6%,
primarily due to increases in union wages and union pension rates. Maintenance,
repairs and decorating expense increased by approximately $8,000 or
approximately 1.5% due to increases in plumbing and grounds expenses offset by
decreases in electrical expense and supplies. Miscellaneous operating and
general expenses increased by approximately $38,000 or approximately 5.0%,
primarily due to increases in security and protection expenses and professional
and consulting expenses. Utilities decreased by approximately $13,000 or
approximately 1.6%, primarily due to reductions in fuel oil prices. Real estate
taxes decreased by approximately $18,000 or approximately 4.5% due to a decrease
in the property's assessed value for the tax year ended June 30, 1999. The
provision for income taxes increased by approximately $49,000 or 26.2% 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 on 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: August 10, 1999 By:/S/ ROBERT GERSHON
------------------------------------
ROBERT GERSHON,
Vice President and Treasurer
Dated: August 10, 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. FORM 10 QSB FOR THE PERIOD ENDED JUNE 30, 1999 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 721,944
<SECURITIES> 0
<RECEIVABLES> 444,418
<ALLOWANCES> 304,000
<INVENTORY> 0
<CURRENT-ASSETS> 2,045,942
<PP&E> 7,411,383
<DEPRECIATION> 262,441
<TOTAL-ASSETS> 11,133,216
<CURRENT-LIABILITIES> 2,543,341
<BONDS> 6,018,866
0
0
<COMMON> 317,048
<OTHER-SE> 1,568,159
<TOTAL-LIABILITY-AND-EQUITY> 11,133,216
<SALES> 5,242,797
<TOTAL-REVENUES> 5,256,112
<CGS> 0
<TOTAL-COSTS> 4,730,536
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 272,491
<INCOME-PRETAX> 525,576
<INCOME-TAX> 236,000
<INCOME-CONTINUING> 289,576
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 289,576
<EPS-BASIC> 1.96
<EPS-DILUTED> 0
</TABLE>
