U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the fiscal year ended December 31, 1999 Commission File No. 0-1322
KNICKERBOCKER VILLAGE, INC.
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(Exact name of Registrant as specified in its Charter)
NEW YORK 13-0924285
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State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
10 Monroe Street, New York, New York 10002
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(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:
Name of each exchange
Title of each class on which registered
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NONE NONE
Securities registered pursuant to Section 12(g) of the Act:
Limited Dividend Capital Stock, Par Value $2.15
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(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 |_|
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State Registrant's revenues for its most recent fiscal year:
$10,620,000.00
State the aggregate market value of the voting stock held by
non-affiliates of the Registrant as of February 28, 2000. 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, 2000.
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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KNICKERBOCKER VILLAGE, INC.
INDEX TO FORM 10-KSB - PARTS I - IV
PAGE NO.
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PART I -
Item 1. DESCRIPTION OF BUSINESS...............................5-9
Item 2. DESCRIPTION OF PROPERTIES.............................10-11
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...................................12
Item 6. MANAGEMENT'S DISCUSSION AND
ANALYSIS OR PLAN OF OPERATION.........................12-16
Item 7. FINANCIAL STATEMENTS..................................16
Item 8. CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE..................................16
PART III -
Item 9. DIRECTORS, EXECUTIVE OFFICERS,
PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH 16(a) OF
THE EXCHANGE ACT......................................17-18
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Page No.
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Item 10. EXECUTIVE COMPENSATION................................18
Item 11. SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND
MANAGEMENT............................................18-19
Item 12. CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS..................................19
PART IV -
Item 13. EXHIBITS AND REPORTS ON
FORM 8-K..............................................19
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PART I
ITEM 1 DESCRIPTION OF BUSINESS
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, 1999, amounted to
approximately $590,000 or approximately $4.00 per share. (See Note 6 of Notes to
Financial Statements). No dividends were declared or paid during 1999 or 1998.
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 1999,
the Registrant paid Cherry Green Property Corp. a management fee approved by the
DHCR in the amount of approximately $966,000 compared to approximately $977,000
paid in 1998. (See Exhibit 10.1 annexed hereto and Note 8 of Notes to Financial
Statements.) The Registrant employs fifty-four (54) persons, all of whom are
full-time employees.
In 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 will be deferred by the Company from
February 1, 2000 to April 1, 2000. Accordingly, net rental income in 1999
increased by approximately $380,000 or approximately four percent (4%) over 1998
amounts, primarily due to the two step rent increase referred to above and
corresponding increases in surcharges and other charges to tenants. Other income
in 1999, increased by approximately $71,000 or approximately six hundred thirty
three percent (633%) primarily due to real estate tax refunds receivable from
the City of New York, which resulted from a reduction in the assessed valuation
of the Company's properties for the fiscal year ended June 30, 1999. Operating
expenses for 1999 increased by approximately $346,000 or approximately four
percent (4%), due to increases in wages and related costs, utilities,
maintenance, repairs and decorating and miscellaneous operating and general
expenses, offset by decreases in real estate taxes, mortgage and other interest,
management and administrative fee, and the provision for doubtful accounts.
Wages and related costs
5
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increased by approximately $65,000 or approximately three percent (3%) in 1999
as compared to 1998. The increase was attributable to an increase in wages and
related payroll taxes of approximately $52,000 primarily due to increases in
union wage rates, and an increase in employee benefits of approximately $12,000
primarily due to increases in union pension rates. Utilities increased by
approximately $221,000 or approximately fourteen percent (14%), primarily due
higher crude oil prices in 1999 which increased fuel oil and gas expenses by
approximately $53,000, increases in water charges of approximately $25,000 and
increases in electricity expense of approximately $143,000. The increase in
electricity expense was primarily due to a refund of $128,000 received from Con
Edison, which reduced the 1998 expense. Maintenance, repairs and decorating
increased by approximately $65,000 or approximately five percent (5 %) in 1999
as compared to 1998. This increase was attributable to increases in heating,
plumbing, supplies and grounds expenses of approximately $163,000 offset by
decreases in elevator maintenance, rubbish removal, compactor maintenance,
painting and structural expense of approximately $98,000. The increase in
plumbing was primarily attributable to repairs of the building's sanitary and
storm sewers of approximately $61,000. Miscellaneous operating and general
expenses increased by approximately $125,000 or approximately eight percent (8%)
in 1999 as compared to 1998, primarily due to increases in legal fees of
approximately $77,000, security expenses of approximately $42,000 and insurance
expense of approximately $37,000, offset by decreases in accounting and
consulting fees of approximately $21,000. The increase in legal fees was
primarily attributable to fees incurred in connection with obtaining a reduction
in real estate taxes for the fiscal years ended June 30, 1999 and 2000. Real
estate taxes decreased by approximately $113,000 or approximately thirteen
percent (13%) in 1999 as compared to 1998, primarily due to reductions in the
assessed valuation of the Company's properties for the fiscal years ended June
30, 1999 and 2000. Mortgage and other interest decreased by approximately $5,000
or approximately one percent (1%), primarily due to a lower principal balance in
1999 as compared to 1998. Management and administration fees decreased by
approximately $11,000 or approximately one percent (1%), primarily due to the
receipt of management agent financial awards of approximately $50,000 in 1998.
This reduction was offset by increases in the management and administration fees
of approximately $29,000 and increases in commercial leasing and rental fees of
approximately $10,000, which were all approved by the DHCR (See Note 8 to the
financial statements, Page F-11). The provision for doubtful accounts decreased
by approximately $8,000 or approximately thirty eight percent (38%) in 1999 as
compared to 1998, primarily due to improved collectability of accounts
receivable. The provision for income taxes increased by approximately $37,000 or
approximately twenty two percent (22%), primarily due to an increase in income
before income taxes and 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
1998 increased by approximately $128,000 or approximately one percent (1%) over
1997 amounts, primarily due to the two step rent increase referred to above,
partially offset by decreases in surcharges and commercial rental income. Other
income in 1998 increased by approximately $2,000 or
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approximately seventeen percent (17%) from 1997 amounts primarily due to higher
reserve fund balances during 1998. Operating expenses for 1998 increased by
approximately $43,000 or approximately one percent (1%) due to increases in
wages and related costs, maintenance, repairs and decorating, management and
administration fee and miscellaneous operations and general expenses offset by
decreases in utilities, depreciation and amortization and mortgage and other
interest expense. Wages and related costs increased by approximately $74,000 or
approximately three percent (3%) in 1998 as compared to 1997. The increase was
attributable to an increase in wages and related payroll taxes of approximately
$69,000 primarily due to increases in union wage rates, and an increase in
employee benefits of approximately $5,000 primarily due to increases in related
payroll taxes. Maintenance, repairs and decorating increased by approximately
$137,000 or approximately twelve percent (12%). The increase was primarily
attributable to increases in repairs to the parapet walls of approximately
$150,000 and electrical and supplies expenses of approximately $72,000, offset
primarily by a decrease in painting expense of approximately $85,000, due to
lower demands in painting jobs compared to 1997. Management and administration
fee increased by approximately $32,000 or approximately three percent (3%) in
1998 compared to 1997, primarily due to increases in the management fee, which
were approved by the DHCR of 2.44% effective July 31, 1997 and 5.5% effective
July 1, 1998. (See Note 8 to the financial statements, Page F-11). Miscellaneous
operating and general expenses increased by approximately $112,000 or
approximately eight percent (8%), primarily due to increases in security costs
of approximately $76,000 and consulting fees of approximately $87,000 incurred
pertaining to rebates received from Con Edison for erroneous billings. These
increases were offset by decreases in professional fees of approximately $8,000
and insurance expense of approximately $43,000. Utilities decreased by
approximately $254,000 or approximately thirteen percent (13%) in 1998 as
compared to 1997, primarily due to a decrease in electricity expense of $103,000
attributable to rebates from Con Edison, a decrease in oil expense of
approximately $123,000 due to lower oil prices and a milder winter and a
decrease in water and sewer expense compared to 1997 of approximately $31,000
due primarily to the switch from standard billings to meter readings. This
decrease was offset by an increase in gas heating of approximately $3,000.
Depreciation and amortization decreased by approximately $20,000 or
approximately four percent (4%) due to the use of accelerated depreciation
methods and the fact that the majority of the fixed assets are in the latter
part of their useful lives. Mortgage and other interest decreased by
approximately $11,000 or approximately two percent (2%), primarily due to the
refinancing of the Company's mortgage debt. (See Note 4 to the financial
statements Page F-9). The provision for doubtful accounts decreased by
approximately $30,000 or approximately fifty seven percent (57%) in 1998 as
compared to 1997, primarily due to improved collections on accounts receivable.
The provision for income taxes increased by approximately $134,000, 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 F-10 and
F-11).
RE-FINANCE OF MORTGAGE
On January 31, 1997 (the "Closing Date"), Registrant entered into a
Consolidation, Modification and Extension Agreement, (the "Loan Agreement"),
with The Greater New York Savings Bank now known as
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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"), with a ten (10) year term, (with a five year option to 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 $71,270.34 and
the total monthly payment is $121,999.86. 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: $97,000 (2000); and
$105,000 (2001). 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%)
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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 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.
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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 $6,066,000 owing at December 31, 1999. (See Item 1 above and Note
4 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 $819,000 in monthly revenue from
residential space, with an average effective annual rental per room of
approximately $135.00 for the year ended December 31, 1999. The average
apartment is three and one-half (3 1/2) rooms. Annual revenues from residential
leases was approximately $9,830,000 for the year ended December 31, 1999.
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, 1999, was approximately
$299,000. Accordingly, gross annual revenue for 1999 from residential leases was
ninety three percent (93%) compared to three percent (3%) of gross annual
revenue from commercial leases.
Real estate taxes on the Registrant's properties were approximately $707,000,
for the year ended December 31, 1999. The tax rate for the 1999 tax year was
approximately eleven percent (11%).
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The Registrant's estimated replacement, repairs and renovation budget and status
of projects for January 1, 1999 to December 31, 1999 ("1999 Projects") and
January 1, 2000 to December 31, 2000 ("2000 Projects") are as follows:
1999 PROJECTS APPROXIMATE COST
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Terrace/Waterproofing $404,000
Asbestos Abatement 402,000
Asbestos Abatement Air
Monitoring and Consulting
Expenses 40,000
Handicap Entrances 28,000
Elevator Consulting 6,000
Walk-In Cooler 80,000
New Sanitation Containers 11,000
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TOTAL:$971,000.00
2000 PROJECTS APPROXIMATE COST
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Architect/Engineering Fees 60,000
Handicap Entrances 100,000
Asbestos Abatement 150,000
Phase 1 Plumbing Replacement 443,000
Appliance Reimbursement 120,000
Waterproofing 100,000
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TOTAL: $973,000.00
The above estimates are for informational purposes only, and include accrual
amounts. The actual costs of such projects may differ. The costs of additional
asbestos abatement or lead paint remediation, if necessary, at the Registrant's
properties can not be determined at this time. 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 $76,000.
ITEM 3 LEGAL PROCEEDINGS
None.
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
None.
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PART II
ITEM 5 MARKET FOR THE REGISTRANT'S COMMON
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, 1999. No
dividends were declared or paid in 1999 or 1998. Cumulative dividends unpaid as
of December 31, 1999 and December 31, 1998 amounted to approximately $590,000
and $571,000 (approximately $4.00 and $3.87 per share), respectively. (See Note
6 of Notes to Financial Statements.)
There are approximately 340 holders of record of the Registrant's Capital Stock
as of March 1, 2000.
ITEM 6 MANAGEMENT'S DISCUSSION AND ANALYSIS
OR PLAN OF OPERATIONS
a).Liquidity - As of December 31, 1999, the Registrant had a working capital
deficiency of approximately $581,000. At December 31, 1998, the Registrant had a
working capital deficiency of approximately $282,000. The working capital
deficiency at December 31, 1999 includes a liability for capital improvements
and maintenance expenses of approximately $237,000, which will be funded in 2000
by the Company's funds for replacement reserves. In December 1998, the Company
received a two step rent increase, which was approved by the DHCR. The first
increase of approximately 3.3% was effective February 1, 1999. The second
increase of approximately 3.2% will be deferred by the Company from February 1,
2000 to April 1, 2000. (See Note 11 to the financial statements, Page F-12).
Subject to unforeseen circumstances, the two step rent increase effective
February 1, 1999 and April 1, 2000, will increase the future liquidity of the
Registrant.
Capital Resources - The Registrant has set aside funds for capital improvements
and repairs amounting to approximately $360,000 and $157,000 as of December 31,
1999 and 1998. (See Note 3 to the financial statements, Page F-9).
Results of Operations - In 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 will be deferred by
the Company from February 1, 2000 to April 1, 2000. Accordingly, net rental
income in 1999 increased by approximately $380,000 or approximately four percent
(4%) over 1998
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amounts, primarily due to the two step rent increase referred to above and
corresponding increases in surcharges and other charges to tenants. Other income
in 1999, increased by approximately $71,000 or approximately six hundred thirty
three percent (633%) primarily due to real estate tax refunds receivable from
the City of New York, which resulted from a reduction in the assessed valuation
of the Company's properties for the fiscal year ended June 30, 1999. Operating
expenses for 1999 increased by approximately $346,000 or approximately four
percent (4%), due to increases in wages and related costs, utilities,
maintenance, repairs and decorating and miscellaneous operating and general
expenses, offset by decreases in real estate taxes, mortgage and other interest,
management and administrative fee, and the provision for doubtful accounts.
Wages and related costs increased by approximately $65,000 or approximately
three percent (3%) in 1999 as compared to 1998. The increase was attributable to
an increase in wages and related payroll taxes of approximately $52,000
primarily due to increases in union wage rates, and an increase in employee
benefits of approximately $12,000 primarily due to increases in union pension
rates. Utilities increased by approximately $221,000 or approximately fourteen
percent (14%), primarily due higher crude oil prices in 1999 which increased
fuel oil and gas expenses by approximately $53,000, increases in water charges
of approximately $25,000 and increases in electricity expense of approximately
$143,000. The increase in electricity expense was primarily due to a refund of
$128,000 received from Con Edison, which reduced the 1998 expense. Maintenance,
repairs and decorating increased by approximately $65,000 or approximately five
percent (5 %) in 1999 as compared to 1998. This increase was attributable to
increases in heating, plumbing, supplies and grounds expenses of approximately
$163,000 offset by decreases in elevator maintenance, rubbish removal, compactor
maintenance, painting and structural expense of approximately $98,000. The
increase in plumbing was primarily attributable to repairs of the building's
sanitary and storm sewers of approximately $61,000. Miscellaneous operating and
general expenses increased by approximately $125,000 or approximately eight
percent (8%) in 1999 as compared to 1998, primarily due to increases in legal
fees of approximately $77,000, security expenses of approximately $42,000 and
insurance expense of approximately $37,000, offset by decreases in accounting
and consulting fees of approximately $21,000. The increase in legal fees was
primarily attributable to fees incurred in connection with obtaining a reduction
in real estate taxes for the fiscal years ended June 30, 1999 and 2000. Real
estate taxes decreased by approximately $113,000 or approximately thirteen
percent (13%) in 1999 as compared to 1998, primarily due to reductions in the
assessed valuation of the Company's properties for the fiscal years ended June
30, 1999 and 2000. Mortgage and other interest decreased by approximately $5,000
or approximately one percent (1%), primarily due to a lower principal balance in
1999 as compared to 1998. Management and administration fees decreased by
approximately $11,000 or approximately one percent (1%), primarily due to the
receipt of management agent financial awards of approximately $50,000 in 1998.
This reduction was offset by increases in the management and administration fees
of approximately $29,000 and increases in commercial leasing and rental fees of
approximately $10,000, which were all approved by the DHCR (See Note 8 to the
financial statements, Page F-11). The provision for doubtful accounts decreased
by approximately $8,000 or approximately thirty eight percent (38%) in 1999 as
compared to 1998, primarily due to improved collectibility of accounts
receivable. The provision for income taxes increased by
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approximately $37,000 or approximately twenty two percent (22%), primarily due
to an increase in income before income taxes and 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
1998 increased by approximately $128,000 or approximately one percent (1%) over
1997 amounts, primarily due to the two step rent increase referred to above,
partially offset by decreases in surcharges and commercial rental income. Other
income in 1998 increased by approximately $2,000 or approximately seventeen
percent (17%) from 1997 amounts primarily due to higher reserve fund balances
during 1998. Operating expenses for 1998 increased by approximately $43,000 or
approximately one percent (1%) due to increases in wages and related costs,
maintenance, repairs and decorating, management and administration fee and
miscellaneous operations and general expenses offset by decreases in utilities,
depreciation and amortization and mortgage and other interest expense. Wages and
related costs increased by approximately $74,000 or approximately three percent
(3%) in 1998 as compared to 1997. The increase was attributable to an increase
in wages and related payroll taxes of approximately $69,000 primarily due to
increases in union wage rates, and an increase in employee benefits of
approximately $5,000 primarily due to increases in related payroll taxes.
Maintenance, repairs and decorating increased by approximately $137,000 or
approximately twelve percent (12%). The increase was primarily attributable to
increases in repairs to the parapet walls of approximately $150,000 and
electrical and supplies expenses of approximately $72,000, offset primarily by a
decrease in painting expense of approximately $85,000, due to lower demands in
painting jobs compared to 1997. Management and administration fee increased by
approximately $32,000 or approximately three percent (3%) in 1998 compared to
1997, primarily due to increases in the management fee, which were approved by
the DHCR of 2.44% effective July 31, 1997 and 5.5% effective July 1, 1998. (See
Note 8 to the financial statements, Page F-11). Miscellaneous operating and
general expenses increased by approximately $112,000 or approximately eight
percent (8%), primarily due to increases in security costs of approximately
$76,000 and consulting fees of approximately $87,000 incurred pertaining to
rebates received from Con Edison for erroneous billings. These increases were
offset by decreases in professional fees of approximately $8,000 and insurance
expense of approximately $43,000. Utilities decreased by approximately $254,000
or approximately thirteen percent (13%) in 1998 as compared to 1997, primarily
due to a decrease in electricity expense of $103,000 attributable to rebates
from Con Edison, a decrease in oil expense of approximately $123,000 due to
lower oil prices and a milder winter and a decrease in water and sewer expense
compared to 1997 of approximately $31,000 due primarily to the switch from
standard billings to meter readings. This decrease was offset by an increase in
gas heating of approximately $3,000. Depreciation and amortization decreased by
approximately $20,000 or approximately four percent (4%) due to the use of
accelerated depreciation methods and the fact that the majority of the fixed
assets are in the latter part of their useful lives. Mortgage and other interest
decreased by approximately $11,000 or approximately two percent (2%), primarily
due to the refinancing of the Company's mortgage debt. (See Note 4 to the
financial statements
14
<PAGE>
Page F-9). The provision for doubtful accounts decreased by approximately
$30,000 or approximately fifty seven percent (57%) in 1998 as compared to 1997,
primarily due to improved collections on accounts receivable. The provision for
income taxes increased by approximately $134,000, 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 F-10 and F-11).
As of December 31, 1999, the Registrant had a working capital deficiency
of approximately $581,000. At December 31, 1998, the Registrant had a working
capital deficiency of approximately $282,000. The working capital deficiency at
December 31, 1999 includes a liability for capital improvements and maintenance
expenses of approximately $237,000, which will be funded in Fiscal 2000 by the
Company's funds for replacement reserves. In 1998, the Company received a two
step rent increase, which was approved by the DHCR. The first increase of
approximately 3.3% will became effective February 1, 1999. The second increase
of approximately 3.2% will be deferred by the Company from February 1, 2000 to
April 1, 2000. (See Note 11 to the financial statements, Page F-12). Subject to
unforeseen circumstances, the two step rent increase effective February 1, 1999
and April 1, 2000, will increase the future liquidity of the Registrant.
Year 2000
The Year 2000 problem is the inability of a significant amount of the world's
computers, software applications and embedded semiconductor chips to cope with
the change of the year from 1999 to 2000. As a result of this problem, systems
could fail to operate or fail to produce correct results at the start of the
21st century.
The Company has surveyed its building systems and does not anticipate any
material cost relating to any required modifications, upgrades, or replacements
of either the operational systems, or facilities systems and equipment of the
Company. Accordingly, the Company does believe that it needs to develop
contingency plans, to identify and correct Year 2000 problems affecting its
operational systems and facilities systems and equipment are not effective.
Disclaimer
The discussion of the Company's efforts, and management's expectations relating
to Year 2000 compliance are forward-looking statements. The Company's ability to
achieve Year 2000 compliance and the level of incremental costs associated
therewith, could be adversely impacted by, among other things, the availability
and cost of programming and testing resources, vendors' ability to modify
proprietary software, and unanticipated problems identified in the ongoing
compliance review.
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.
15
<PAGE>
ITEM 8 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 9 DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a)OF THE EXCHANGE ACT
Position with Held Principal
Name Age Registrant Since Occupation
- ---- --- ---------- ----- ----------
Irene Pletka (1)(2) 58 President and 1977 Commercial Photographer
Director
Peter Pletka (1)(2) 62 Vice President 1992 Physician
Howard Kestenberg 43 Director 1992 Real Estate Entrepreneur
(3)
Robert Gershon 63 Director, Vice 1977 Principal in the firm of
(2) (4) President and Carl Gershon & Co., a
Treasurer Real Estate Brokerage.
Melvin Gershon 57 Director and 1977 Principal in the firm
(2) (4) Secretary of Carl Gershon & Co.
Loretta Jefferson 57 Director 1998 Housing Management
Representative, New York
State Division of Housing
and Community Renewal.
- ------------------------------
(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.
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
16
<PAGE>
the Securities and Exchange Commission ("SEC") and each national
securities exchange on which the equity securities of the Company is
registered, 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, 1999 and 1998, respectively.
ITEM 10 EXECUTIVE COMPENSATION
During the year ended December 31, 1999, 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 increases in its management fee
of 5.5% and 1.4%, effective July 1, 1998 and July 1, 1999,
respectively, pursuant to a Contract for Managing Agents Extension
Agreement, approved by the DHCR on September 22, 1999. (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 1999,
the Registrant paid Cherry Green Property Corp. a management and
administrative fee of approximately $966,000. Such fee was approved
by the DHCR. (See Items 1, 9, 11 and 12 and Note 8 of Notes to
Financial Statements.)
17
<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, 1999:
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, 1999, 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.
(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.
18
<PAGE>
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 1999, the Registrant paid Cherry Green Property
Corp. a management and administrative fee of approximately $966,000.
Such fee was approved by the DHCR pursuant to a contract, with
increases effective July 1, 1998 and July 1, 1999. (See Exhibit 10.1
annexed hereto) (See Note 8 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, 1999, 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 September
22, 1999.
19
<PAGE>
KNICKERBOCKER VILLAGE, INC.
INDEX TO FINANCIAL STATEMENTS
Independent Auditors' Report F-2
Balance Sheets F-3 to F-4
Statements of Net Income, Comprehensive Income
and Retained Earnings, Years Ended December 31, 1999 and 1998 F-5
Statements of Cash Flows,
Years Ended December 31, 1999 and 1998 F-6
Notes to Financial Statements F-7 to F-12
<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, 1999 and 1998, and the related statements of net income,
comprehensive income and retained earnings and cash flows for the years then
ended. 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, 1999 and 1998, and the results of its operations and its cash
flows for the years then ended in conformity with generally accepted accounting
principles.
March 21, 2000 Held, Kranzler, McCosker & Pulice, LLP
F-2
<PAGE>
KNICKERBOCKER VILLAGE, INC.
BALANCE SHEETS
AS OF DECEMBER 31, 1999 AND 1998
1999 1998
----------- -----------
Assets
Current Assets:
Cash and cash equivalents $ 517,751 $ 92,956
Accounts receivable (less allowance for
doubtful accounts of $308,000 in 1999
and $301,000 in 1998) 119,174 142,485
Interest and other receivables 185,176 164,051
Prepaid expenses and other current assets 1,308,751 1,676,790
Deferred tax asset, net 72,000 71,000
----------- -----------
Total Current Assets 2,202,852 2,147,282
----------- -----------
Special Funds And Deposits:
Funds for replacements, painting
and decorating 359,880 157,593
Tenants' security deposits - contra 669,628 671,366
----------- -----------
Total Special Funds and Deposits 1,029,508 828,959
----------- -----------
Fixed Assets:
Land 3,273,281 3,273,281
Buildings and Building Equipment 16,830,575 16,289,745
----------- -----------
20,103,856 19,563,026
Less: Accumulated depreciation 12,495,670 11,964,330
----------- -----------
Net Fixed Assets 7,608,186 7,598,696
----------- -----------
Other Assets:
Deferred tax asset, net 288,000 249,000
Other assets 100,932 113,731
----------- -----------
388,932 362,731
----------- -----------
Total Assets $11,229,478 $10,937,668
=========== ===========
The accompanying notes are an integral part of the financial statements.
F-3
<PAGE>
KNICKERBOCKER VILLAGE, INC.
BALANCE SHEETS
AS OF DECEMBER 31, 1999 AND 1998
1999 1998
----------- -----------
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable and accrued expenses $ 2,633,849 $ 2,269,509
Unearned rental income 24,167 27,497
Dividends payable 19,023 19,023
Income tax payable 5,600 15,576
Current portion of long-term debt 96,835 88,971
Current portion of capital lease obligation 4,419 8,406
----------- -----------
Total Current Liabilities 2,783,893 2,428,982
Tenants' Security Deposits - Contra 669,628 671,366
Other Liabilities 0 170,707
Long-Term Debt, less current portion 5,969,424 6,066,258
Capital Lease Obligation, less current portion 0 4,718
----------- -----------
Total Liabilities 9,422,945 9,342,031
----------- -----------
Commitments and Contingencies
Stockholders' Equity:
Limited dividend capital stock,
par value $2.15 per share,
Authorized - 348,837 shares;
issued and outstanding - 147,464 317,048 317,048
Retained earnings 1,489,485 1,278,589
----------- -----------
Total Stockholders' Equity 1,806,533 1,595,637
----------- -----------
Total Liabilities and Stockholders' Equity $11,229,478 $10,937,668
=========== ===========
The accompanying notes are an integral part of the financial statements.
F-4
<PAGE>
KNICKERBOCKER VILLAGE, INC.
STATEMENTS OF NET INCOME, COMPREHENSIVE INCOME AND RETAINED EARNINGS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
1999 1998
----------- -----------
Revenues:
Rentals $10,537,414 $10,157,928
Other income 82,200 11,206
----------- -----------
10,619,614 10,169,134
----------- -----------
Expenses:
Wages and related costs 2,489,177 2,424,172
Real estate taxes 707,436 820,053
Utilities 1,853,269 1,631,750
Maintenance, repairs and decorating 1,366,523 1,301,089
Depreciation and amortization 545,280 546,872
Mortgage and other interest 539,711 544,394
Management and administrative fee 965,901 977,223
Bad debt 13,729 22,140
Miscellaneous operating and general expenses 1,724,692 1,591,497
----------- -----------
10,205,718 9,859,190
----------- -----------
Income before income taxes 413,896 309,944
Provision for income taxes 203,000 166,000
----------- -----------
Net income and comprehensive income 210,896 143,944
Retained earnings at beginning of the year 1,278,589 1,134,645
----------- -----------
Retained earnings at end of the year $ 1,489,485 $ 1,278,589
=========== ===========
Earnings per share $ 1.43 $ 0.98
=========== ===========
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, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 210,896 $ 143,944
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 545,280 546,872
Provision for bad debts 13,729 22,140
Deferred income taxes (40,000) (51,000)
Changes in assets (increase) decrease:
Accounts receivable 9,582 34,299
Interest and other assets (21,125) (129,450)
Prepaid expenses 368,039 (297,873)
Other assets (1,142) 0
Changes in liabilities increase (decrease):
Accounts payable and accrued expenses 354,364 514,376
Unearned rental income (3,329) 2,375
Other liabilities (170,707) (80,607)
----------- -----------
Net cash provided by operating activities 1,265,587 705,076
----------- -----------
Cash Flows From Investing Activities:
Interest earned on reserve fund investments (6,868) (4,849)
Capital expenditures (540,830) (540,810)
Contributions of cash from operations to replacement fund (977,190) (740,000)
Reimbursement of expenditures paid by housing company
from replacement fund 781,771 761,212
----------- -----------
Net cash used in investing activities (743,117) (524,447)
----------- -----------
Cash flows from financing activities:
Payments on long-term debt (88,970) (81,745)
Payments on capital lease obligation (8,705) (8,407)
----------- -----------
Net cash used in financing activities (97,675) (90,152)
----------- -----------
Net increase in cash 424,795 90,477
Cash at beginning of year 92,956 2,479
----------- -----------
Cash at end of year $ 517,751 $ 92,956
=========== ===========
Supplemental Disclosures of Cash Flow Information:
Cash paid during the years for:
Interest $ 540,000 $ 544,000
=========== ===========
Income taxes $ 248,000 $ 200,000
=========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-6
<PAGE>
KNICKERBOCKER VILLAGE, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 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 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 consist 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 was approximately $531,000 and $533,000 for the
years ended December 31, 1999 and 1998, respectively.
F-7
<PAGE>
KNICKERBOCKER VILLAGE, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 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.
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.
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. Receivables - The carrying amount approximates fair value
because of the short maturity of these instruments.
3. 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, 1999 AND 1998
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.
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.
NOTE 3 - 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, 1999 and 1998:
1999 1999
--------- ---------
Cash $ 359,880 $ 157,593
========= =========
NOTE 4 - 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,
1999 are approximately $97,000, (2000); $105,000, (2001); $115,000,
(2002); $125,000 (2003); and $136,000,(2004); $5,488,000,
(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 building equipment are the
following assets held under capital leases:
1999 1998
------- -------
Building Equipment $34,961 $34,961
Less accumulated depreciation 13,104 8,736
------- -------
$21,857 $26,225
======= =======
F-9
<PAGE>
KNICKERBOCKER VILLAGE, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
Future minimum payments for assets under capital leases are as
follows at December 31, 1999:
Year Ending December 31 2000 $ 5,577
--------
Total minimum lease payments 5,577
Less amounts representing interest 1,158
--------
Present value of net minimum lease payments $ 4,419
========
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 December 31, 1999 amounted to
$589,712 or approximately $4.00 per share and unpaid to December 31,
1998 amounted to $570,689 or approximately $3.87 per share.
Dividends amounting to $19,023 were declared during 1979, but were
not paid as of December 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 years ended December 31, 1999
and 1998 consist of the following:
1999 1998
--------- ---------
Current Taxes
Federal $ 189,000 $ 169,000
New York City 54,000 48,000
--------- ---------
Total 243,000 217,000
--------- ---------
Deferred Taxes
Federal (32,000) (40,000)
New York City (8,000) (11,000)
--------- ---------
Total (40,000) (51,000)
--------- ---------
Provision For Income Taxes $ 203,000 $ 166,000
========= =========
F-10
<PAGE>
KNICKERBOCKER VILLAGE, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
The provision for income taxes differs from amounts computed at
statutory rates as follows:
1999 1998
-------- --------
Federal income taxes at statutory rate $141,000 $105,000
New York City corporation tax -
net of federal benefit 54,000 18,000
Other, net 8,000 43,000
-------- --------
Total $203,000 $166,000
======== ========
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, 1999, and 1998 the net deferred tax assets
of $360,000 and $320,000, respectively were included in the
Company's balance sheets as follows.
1999 1998
-------- --------
Deferred tax asset, net - current $ 72,000 $ 71,000
Deferred tax asset, net - Long term 288,000 249,000
-------- --------
Deferred tax asset, net $360,000 $320,000
======== ========
Significant components of the Company's net deferred tax asset at
December 31, 1999 and 1998 are as follows:
1999 1998
--------- ---------
Tax effects of:
Accounts receivable $ 133,000 $ 129,000
Unearned rental income 10,000 13,000
Buildings and building equipment 577,000 498,000
--------- ---------
Gross deferred tax asset 720,000 640,000
Valuation allowance (360,000) (320,000)
--------- ---------
Net deferred tax asset $ 360,000 $ 320,000
========= =========
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 the valuation allowance for the years
ended December 31, 1999 and 1998 were increases of $40,000 and
$50,000, respectively.
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.
F-11
<PAGE>
KNICKERBOCKER VILLAGE, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
On October 21, 1998 and September 2, 1999, the DHCR approved
increases in the management fee of approximately 5.5% effective July
1, 1998 and approximately 1.4% effective July 1, 1999, respectively.
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 were
approximately $80,000 and $71,000 for the years ended December 31,
1999 and 1998 respectively.
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. As of December 31, 1999, the commitment has
been fulfilled. The costs of any additional asbestos abatement or
lead paint remediation, if necessary, cannot 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% was effective February 1, 1999. The second increase of
approximately 3.2% will be deferred by the Company from February 1,
2000 to April 1, 2000.
NOTE 12 - PREPAID EXPENSES AND OTHER CURRENT ASSETS
Prepaid expenses and other current assets in the accompanying
balance sheets at December 31, 1999 and 1998 are as follows:
1999 1998
---------- ----------
Escrow Account $ 348,429 $ 589,395
Prepaid:
Insurance 505,029 589,287
Real Estate Taxes 348,897 386,924
Supplies 93,397 95,011
Interest 0 16,173
Expenses - Other 1,999 0
Federal Corporation Taxes 11,000 0
---------- ----------
TOTAL $1,308,751 $1,676,790
========== ==========
F-12
<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, 2000
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, 2000
(Signature and Title) :S/PETER PLETKA
- --------------------------------------------------------------------------------
PETER PLETKA, Vice President
Dated: March 27, 2000
(Signature and Title) :S/MELVIN GERSHON
- --------------------------------------------------------------------------------
MELVIN GERSHON, Director and Secretary
Dated: March 27, 2000
20
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, 19999, and wish to
extend the Contract further, it is agreed that:
1. The Contract is extended for twelve (12) months, from July 1, 1999 to June
30, 2000.
2. Article 5.1(a) of the Owner-Agent Agreement is amended as follows:
Managing Agent Fee $75,174.00 per month. This amount represents the
sum of:
$67,833.00 the Project's Base Rate: plus
$ 7,341.00 the Project's Administrative Expense Fee.
3. Article 5.1(e) of the Owner-Agent Agreement is amended as follow:
Site Manager Reimbursement for the year ending June 30, 2000 is $60,411.36
per year payable in equal monthly 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 been 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 1/87 and |X| is currently certified by
National Assn. of Home Builders or |_| is not certified.
Owner: Knickerbocker Village, Inc. Agent: Cherry Green Property Corp.
/S/ Robert Gershon /S/ Robert Gershon
- ------------------------------------- -----------------------------------
Signature Date Signature Date
Robert Gershon, Treasurer Robert Gershon, Vice President
- ------------------------------------- -----------------------------------
Name/Title (Please Type) Name/Title (Please Type)
- --------------------------------------------------------------------------------
TO BE COMPLETED BY HOUSING COMPANY FOR DHCR USE ONLY
|X| accepted |_| amended
Development Knickerbocker Village, Inc. By: /S/ Ellen Irizarry
--------------------------- -------------------
DHCR Number HCLD #9 Date September 22, 1999
------- ------------------
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from
Knickerbocker Village Inc. Form 10-KSB for the period ended December 31, 1999
and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 517,751
<SECURITIES> 0
<RECEIVABLES> 427,174
<ALLOWANCES> 308,000
<INVENTORY> 0
<CURRENT-ASSETS> 2,202,852
<PP&E> 7,608,186
<DEPRECIATION> 531,340
<TOTAL-ASSETS> 11,229,478
<CURRENT-LIABILITIES> 2,783,893
<BONDS> 5,969,424
0
0
<COMMON> 317,048
<OTHER-SE> 1,489,485
<TOTAL-LIABILITY-AND-EQUITY> 11,229,478
<SALES> 10,537,414
<TOTAL-REVENUES> 10,619,614
<CGS> 0
<TOTAL-COSTS> 10,205,718
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 539,711
<INCOME-PRETAX> 413,896
<INCOME-TAX> 203,000
<INCOME-CONTINUING> 210,896
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 210,896
<EPS-BASIC> 1.43
<EPS-DILUTED> 0
</TABLE>
