UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10 QSB
Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended September 30, 2000
Commission file Number 000-30007
NORTHBOROUGH HOLDINGS, INC.
(Exact Name of Registrant as Specified in its Charter)
COLORADO
(State or Other Jurisdiction of Incorporation)
000-30007 05-0508624
(Commission File Number) (I.R.S. Employer Identification Number)
17 WEST CHEYENNE MOUNTAIN BLVD.
Colorado Springs, Colorado 80906
(Address of Principal Executive Offices) (Zip Code)
(401) 453-6870
(Registrant's Telephone Number, Including Area Code)
Indicate by check mark 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 [ ]
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practical
date:
Common Stock, $.001 par value - 1,200,000 shares as of September 30, 2000.
FORWARD-LOOKING INFORMATION
THIS FORM 10QSB AND OTHER STATEMENTS ISSUED OR MADE FROM TIME TO TIME BY
NORTHBOROUGH HOLDINGS, INC. (THE "COMPANY") OR ITS REPRESENTATIVES CONTAIN
STATEMENTS WHICH MAY CONSTITUTE "FORWARD-LOOKING STATEMENTS" WITHIN THE
MEANING OF THE SECURITIES ACT OF 1933 AND THE SECURITIES EXCHANGE ACT OF
1934, AS AMENDED BY THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995.
FIFTEEN U.S.C.A. SECTIONS 77Z-2 AND 78U-5 (SUPP. 1996). THOSE STATEMENTS
INCLUDE STATEMENTS REGARDING THE INTENT, BELIEF OR CURRENT EXPECTATIONS
OF THE COMPANY AND MEMBERS OF ITS MANAGEMENT TEAM AS WELL AS THE
ASSUMPTIONS ON WHICH SUCH STATEMENTS ARE BASED.
PROSPECTIVE INVESTORS ARE CAUTIONED THAT ANY SUCH FORWARD-LOOKING
STATEMENTS ARE NOT GUARANTEES OF FUTURE PERFORMANCE AND INVOLVE RISKS AND
UNCERTAINTIES, AND THAT ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE
CONTEMPLATED BY SUCH FORWARD-LOOKING STATEMENTS. IMPORTANT FACTORS CURRENTLY
KNOWN TO MANAGEMENT THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM
THOSE IN FORWARD-LOOKING STATEMENTS ARE SET FORTH IN THE SAFE HARBOR COMPLIANCE
STATEMENT FOR FORWARD-LOOKING STATEMENTS INCLUDED AS EXHIBIT 99.1 TO THIS
FORM 10QSB AND ARE HEREBY INCORPORATED HEREIN BY REFERENCE. THE COMPANY
UNDERTAKES NO OBLIGATION TO UPDATE OR REVISE FORWARD-LOOKING STATEMENTS TO
REFLECT CHANGED ASSUMPTIONS, THE OCCURRENCE OF UNANTICIPATED EVENTS OR CHANGES
TO FUTURE OPERATING RESULTS OVER TIME.
- --------------------------------------------------------------------------------
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F-1
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
FINANCIAL STATEMENTS AND EXHIBITS
(a) The following financial statements of the Company are filed as part of
this registration statement:
NORTHBOROUGH HOLDINGS, INC.
BALANCE SHEET
September 30, 2000
ASSETS
Current Assets
Checking/Savings $109,324.10
Total Curent Assets $109,324.10
Fixed Assets $164,857.33
Other Assets $457,599.70
TOTAL ASSETS $731,781.13
LIABILITIES & EQUITY
Liabilities
Current Liabilities .00
Other Current Liabilities
Accrued State Tax 250.00
BankBoston Line of Credit 170,000.00
Security Deposit 2,650.00
Total Other Current Liabilities $172,900.00
Total Current Liabilities $172,900.00
Long Term Liabilities $126,259.58
Total Liabilities $299,159.58
Equity
Member Contributions (190,545.50)
Retained Earnings 248,502.83
Net Income 374,664.22
Total Equity 432,621.55
Total Liabilities and Equity $731,781.13
NORTHBOROUGH HOLDINGS, INC.
PROFIT & LOSS
September 30, 2000
Ordinary Income/Expense
Income $438,171.79
Total Income $438,171.79
Expense
Advertisement $ 324.80
Bank Service Charges 271.26
Filing Fees 1,100.00
Insurance 13,768.04
Interest Expense
Loan Interest 15,973.79
Mortgage 8,672.90
Total Interest Expense $ 24,646.69
Postage and Delivery 100.25
Professional Fees
Accounting 11,325.00
Appraisal 750.00
Legal Fees 7,403.35
Total Professional Fees 19,478.35
Taxes
Property $ 6,239.44
Total Taxes $ 6,239.44
Travel & Entertainment 835.65
Total Expense $ 66,764.48
Net Ordinary Income $371,407.31
Other Income/Expense
Other Income
Interest Income $ 3,756.91
Total Other Income $ 3,756.91
Other Expense
Other Expense $ 500.00
Total Other Expense 500.00
Net Other Income $ 3,256.91
NET INCOME $374,664.22
NORTHBOROUGH HOLDINGS, INC.
Index to Combined Financial Statements
December 31, 1999 and 1998
Page
Independent Auditors' Report 1
Combined Balance Sheets 2
Combined Statements of Operations 3
Combined Statements of Changes in Members' Equity 4
Combined Statements of Cash Flows 5
Notes to Combined Financial Statements 6
F-1
INDEPENDENT AUDITORS' REPORT
To the Owners
Northborough Holdings, Inc.
Providence, Rhode Island
We have audited the accompanying combined balance sheets of Northborough
Holdings, Inc. (as defined in Note 1A) as of December 31, 1999 and 1998,
and the related combined statements of operations, changes in members'
equity, and cash flows for the years then ended. These combined financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these combined 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 audits to
obtain reasonable assurance about whether the combined financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the combined
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall combined financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of Northborough
Holdings, 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.
/s/ Rooney Plotkin & Willey LLP
________________________________
ROONEY, PLOTKIN & WILLEY, LLP
February 4, 2000
F-2
NORTHBOROUGH HOLDINGS, INC.
Combined Balance Sheets
December 31, 1999 and 1998
1999 1998
ASSETS
Assets:
Cash $ 5,910 $ 4,881
Notes Receivable (Note 2) 108,994 53,634
Mortgage Loans and Other Receivable, Net (Note 3) 436,778 384,570
Real Estate Under Operating Lease, Net (Notes 4 and 8) 164,857 170,853
Other Assets 105,000 100,417
Total Assets $ 821,539 $714,355
LIABILITIES AND MEMBERS' EQUITY
Liabilities:
Note Payable, Bank (Note 6) $ 37,000 $230,000
Accrued Distributions 240,000 -
Accrued Expenses 15,250 250
Long-Term Debt (Note 7) 136,682 -
Security Deposit 2,650 2,650
Total Liabilities 431,582 232,900
Members' Equity 389,957 481,455
Total Liabilities and Members' Equity $ 821,539 $714,355
F-3
NORTHBOROUGH HOLDINGS, INC.
Combined Statements of Operations
Years Ended December 31, 1999 and 1998
1999 1998
Operating Revenues:
Interest Income $ 150,492 $77,944
Fee Income 31,327 4,500
Gain on Disposition of Mortgage Loans 70,950 97,797
Total Operating Revenues 252,769 180,241
General and Administrative Expenses 31,286 19,871
Income from Operations 221,483 160,370
Other Income (Expense):
Rental Income, Net (Note 8) 24,474 34,045
Gain on Sale of Property - 35,349
Interest Income 4,529 8,020
Interest Expense on Note Payable, Bank (1,984) (2,253)
Total Other Income 27,019 75,161
Net Income $ 248,502 $235,531
F-4
NORTHBOROUGH HOLDINGS, INC.
Combined Statements of Changes in Members' Equity
Years Ended December 31, 1999 and 1998
1999 1998
Members' Equity, Beginning of Year $ 481,455 $527,924
Net Income 248,502 235,531
Distributions to Members (340,000) (282,000)
Members' Equity, End of Year $ 389,957 $481,455
F-5
NORTHBOROUGH HOLDINGS, INC.
Combined Statements of Cash Flows
Years Ended December 31, 1999 and 1998
1999 1998
Operating Activities:
Net Income $ 248,502 $235,531
Adjustments to Reconcile Net Income
to Net Cash Provided by Operating
Activities:
Depreciation 5,996 3,516
Gain on Sale of Property - (35,349)
Gain on Disposition of Mortgage Loans (70,950) (97,797)
Change In:
Accrued Expenses 15,000 250
Total Adjustments (49,954) (129,380)
Net Cash Provided by Operating Activities 198,548 106,151
Investing Activities:
Purchases of Land and Building Improvements - (51,864)
Notes Receivable (70,000) -
Repayments on Notes Receivable 14,640 82,366
Purchases of Mortgage Loans and Other Receivable (221,200) (382,209)
Repayments Collected on Mortgage Loans 23,992 -
Proceeds on Disposition of Mortgage Loans 215,950 190,437
Other (4,583) 103,076
Net Cash Used in Investing Activities (41,201) (58,194)
Financing Activities:
Proceeds from Issuance of Long-Term Debt 139,000 -
Net Borrowings (Repayments) on Note Payable, Bank (193,000) 230,000
Principal Payments on Long-Term Debt (2,318) -
Distributions to Members (100,000) (282,000)
Net Cash Used in Financing Activities (156,318) (52,000)
Increase (Decrease) in Cash 1,029 (4,043)
Cash, Beginning of Year 4,881 8,924
Cash, End of Year $ 5,910 $ 4,881
Supplemental Disclosures of Cash Flow Information:
Cash Paid During the Year for Interest $ 3,999 $ 2,253
Supplemental Disclosures of Non-Cash Investing and Financing Activities:
During 1999 the Company declared $240,000 of member distributions which
were paid in January 2000. During 1998 the Company originated notes
receivable of $136,000 in connection with the sale of property.
F-6
NORTHBOROUGH HOLDINGS, INC.
Notes to Combined Financial Statements
December 31, 1999 and 1998
1. Summary of Operations and Significant Accounting Policies:
A. Organization and Principles of Combination:
Northborough Holdings, Inc. is composed of the following entities
affiliated through common ownership:
Northborough Holdings, Inc. (NHI), a Colorado corporation
Northborough Realty Holdings, LLC (NRH), a Rhode Island limited liability
company
NHI was organized on November 24, 1999 to become the holding company for
NRH. As of December 31, 1999 there was no activity in the NHI entity. There
were no business transactions in the NHI entity for the year ended December
31, 1999. NRH (the Company) is a privately held limited liability company
organized under Rhode Island law. The Company was organized on May 29, 1996
and terminates no later than May 29, 2046. The Company is principally
engaged in the acquisition and subsequent sale of distressed financial
assets, primarily commercial mortgage loans acquired from financial
institutions and other entities at a discount. The Company manages these
assets by collecting payments based on the original terms or renegotiated
terms, or by foreclosure and liquidation of the collateral. The Company
also originates mortgage loans, performs collections activity for a fee and
operates a rental property acquired in a foreclosure transaction.
B. Notes Receivable:
Notes receivable represent mortgage financing originated by the Company.
Notes receivable are recorded at the aggregate lower of cost or market and
are collateralized by commercial property, personal guarantees, and other
business assets. Management believes that the value of such collateral is
in excess of the notes receivable as of December 31, 1999 and 1998 and
therefore, no allowance has been provided.
C. Mortgage Loans and Other Receivable, Net:
Mortgage loans and other receivable represent notes and other financial
assets acquired at a discount and are recorded at cost. All mortgage loans
and the other receivable are collateralized by commercial property.
Management believes that the value of such collateral is in excess of cost
as of December 31, 1999 and 1998 and therefore, no allowance has been
provided.
F-7
1. Summary of Operations and Significant Accounting Policies:
(Continued)
D. Real Estate Under Operating Lease:
Real estate acquired through foreclosure is recorded at the fair value of
the property at the time of the foreclosure auction. The property acquired
is primarily used as an income-producing asset. Capitalizable improvements
to real property are recorded at cost. Depreciation is provided using the
straight-line method over the estimated useful lives of the related assets.
E. Revenue Recognition:
Discount amortization revenue is recognized to the extent payments received
are earned and is included in operating revenues as interest income. Gain
or loss on the disposition of these financially distressed assets is
calculated based on gross proceeds from the sale of the asset or
collateral, less the expenses related to the sale or foreclosure, less the
book value of the asset.
F. Income Taxes:
NRH, by unanimous consent of its members, has elected to be treated as a
partnership for income tax purposes and as such is not taxed. Under
subchapter K of the Internal Revenue Code each member is taxed separately
on their distributive share of the Company's income whether or not that
income is actually distributed.
G. Use of Estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the 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 amounts could differ from those
estimates.
F-8
2. Notes Receivable:
Notes receivable originated by the Company consist of the following:
1999 1998
10.00% note receivable of $56,000 due in monthly principal
and interest installments of $467 from July 1, 1998 to
May 1, 2001. The note is due in full on June 1, 2001.
Secured by real estate, personal guarantee and other business
assets. $ 46,994 $ 53,634
Note receivable of $50,000 due in monthly principal
installments of $1,000 for August and September 1999,
$2,000 for October 1999 to January 2000, and $5,000
for February and March 2000, plus accrued interest.
The remaining principal and interest on the note is due
in full on April 1, 2000. The interest rate is adjustable
to 2.75% over prime and at December 31, 1999 was
11.25%. Secured by real estate and other business
assets. 44,000 -
14.00% note receivable of $20,000 due in monthly principal
installments of $1,000 from November 1, 1999 through
June 1, 2001, plus interest. Secured by real estate, other
business assets, and a personal guarantee. 18,000 -
Total Notes Receivable $ 108,994 53,634
Notes receivable mature as follows:
Year ending December 31,
2000 $ 57,005
2001 51,989
$ 108,994
F-9
3. Mortgage Loans and Other Receivable, Net:
Mortgage loans and other receivable acquired at a discount consist of the
following:
1999 1998
Original Principal Amount $ 972,394 $ 818,777
Unamortized Discount (535,616) (434,207)
Mortgage Loans and Other Receivable, Net $ 436,778 $ 384,570
Original loans consist of the following at December 31, 1999:
Principal Unamortized
Amount Discount
8.30% mortgage loan, due 2008 $ 437,400 $ 266,083
10.50% mortgage loan, due 1989 242,404 187,404
8.00% mortgage loan, due 1996 99,585 9,485
9.05% mortgage loan, due 1998 68,735 635
10.50% mortgage loan, due 2012 40,231 28,559
11.50% mortgage loan, due 1999 32,700 24,700
10.50% mortgage loan, due 2002 21,254 8,665
Other non-interest bearing secured receivable,
due 1995 30,085 10,085
Totals $ 972,394 $ 535,616
Original loans consist of the following at December 31, 1998:
Unamortized Principal Discount
Amount (Premium)
8.30% mortgage loan, due 2008 $ 440,596 $ 268,026
11.00% mortgage loan, due 1994 234,447 129,447
10.50% mortgage loan, due 2012 44,892 29,892
9.75% mortgage loan, due 2002 38,277 6,276
8.00% mortgage loan, due 2002 30,480 (9,519)
Other non-interest bearing secured
receivable, due 1995 30,085 10,085
Totals $ 818,777 $ 434,207
The discounts are based on imputed interest rates ranging from 8.00% to
11.50%.
F-10
4. Real Estate Under Operating Lease, Net:
Real estate under operating lease consists of the following:
1999 1998
Land and Improvements $ 60,075 $ 60,075
Building and Improvements 114,500 114,500
Accumulated Depreciation (9,718) (3,722)
Real Estate Under Operating Lease, Net $ 164,857 $ 170,853
The Company is a lessor of the above real estate. See Note 8.
5. Other Assets:
Other assets consist of the following:
1999 1998
Certificate of Deposit $ 100,000 $ 100,417
Other Deposit 5,000 -
Other Assets $ 105,000 $ 100,417
At December 31, 1999 and 1998 $100,000 of the certificate of deposit was
pledged to the line of credit. See Note 6.
6. Note Payable, Bank:
The Company has a $400,000 demand line of credit agreement with a local
bank. Interest at the lender's base rate is payable monthly. The interest
rate was 8.50% and 7.75% at December 31, 1999 and 1998, respectively. The
line of credit is secured by a pledge of a certificate of deposit of
$100,000, limited guarantee of the members of the Company, and a security
interest in all business assets. See Note 5.
F-11
7. Long-Term Debt:
Long-term debt consists of an 8.59% mortgage note payable to a local bank.
The mortgage is due in monthly principal installments of $1,159 plus
interest. A final installment of principal and interest is due September
30, 2004. The mortgage includes certain covenant provisions including, but
not limited to, maintenance of the property, insurance coverage and the
maintenance of an operating cash flow to debt service ratio. Interest
expense on all debt was $3,999 and $2,253 at December 31, 1999 and 1998,
respectively. The mortgage note payable matures as follows:
Year ending December 31,
2000 $ 13,908
2001 13,908
2002 13,908
2003 13,908
2004 81,050
$ 136,682
8. Rental Income:
The Company leases its land, building and improvements under an operating
lease. The initial five-year term of the lease expires December 31, 2002.
The lease is renewable, at the lessee's option, for one additional
five-year term. The base monthly rent was $2,850 and $2,650 for 1999 and
1998, respectively, and it increases $200 per year during the initial lease
term. Rental income for the years ended December 31, 1999 and 1998 was
$42,723 and $37,714, respectively and is presented net of depreciation,
property taxes, mortgage interest, and repair and maintenance charges. The
initial lease term includes a provision for additional rent based on the
cost of land improvements incurred by the Company. See Note 4.
Future minimum rental receipts under this operating lease are as follows:
Year ending December 31,
2000 $ 44,254
2001 46,654
2002 49,054
$ 139,962
F-12
9. Subsequent Events:
A. Northborough Realty Holdings, LLC:
Subsequent to year end December 31, 1999, the Company borrowed
$340,000 on its line of credit, made purchases of mortgage loans totaling
$110,000 and made member distributions of $240,000.
B. Northborough Holdings, Inc.:
On December 28, 1999 NHI entered into an agreement with NRH to acquire all
of the membership interests of NRH for common stock of NHI in a tax-free
exchange. The transaction is expected to close in the first quarter of
2000. NHI, a C-corporation, will be subject to federal and state corporate
income taxes on the income of NRH.
NORTHBOROUGH REALTY HOLDINGS, LLC
FORECASTED FINANCIAL STATEMENTS
UNDER THE HYPOTHETICAL ASSUMPTIONS
IN NOTE 1 ACTUAL HISTORICAL RESULTS
BALANCE SHEETS
1997 1998 1999
ASSETS
CURRENT ASSETS:
CASH 8,924 4,881 5,910
INVESTMENTS AND MARKETABLE SECURITIES 206,355 100,417 105,000
LOAN PORTFOLIO 151,001 438,204 545,772
TOTAL CURRENT ASSETS 366,280 543,502 656,682
FIXED ASSETS:
LAND 33,473 26,000 26,000
BUILDINGS AND IMPROVEMENTS 133,890 148,575 148,575
TOTAL FIXED ASSETS 167,363 174,575 174,575
LESS ACCUMULATED DEPRECIATION 293 3,722 9,718
NET FIXED ASSETS 167,070 170,853 164,857
OTHER ASSETS:
INTANGIBLES
LESS ACCUMULATED AMORTIZATION
TOTAL OTHER ASSETS
TOTAL ASSETS 533,350 714,355 821,539
LIABILITIES & STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
ACCOUNTS PAYABLE
NOTES PAYABLE-CURRENT 0 27,336
NOTES PAYABLE-LINE 230,000 37,000
OTHER CURRENT LIABILITIES 5,000 2,650 257,650
INCOME TAXES 426 250 250
TOTAL CURRENT LIABILITIES 5,426 232,900 322,236
OTHER LIABILITIES:
NOTE PAYABLE 0 0 136,682
LESS CURRENT PORTION 0 0 27,336
TOTAL OTHER LIABILITIES 0 0 109,346
STOCKHOLDERS'/ OWNERS' EQUITY:
COMMON STOCK/CAPITAL 300,000 300,000 300,000
PREFERRED STOCK
RETAINED EARNINGS/ACCUMULATED CAPITAL 227,924 181,455 89,957
CURRENT PERIOD P&L 0 0 0
TOTAL STOCKHOLDERS' EQUITY 527,924 481,455 389,957
TOTAL LIABILITIES & STOCKHOLDERS'
EQUITY 533,350 714,355 821,539
SEE SUMMARY OF SIGNIFICANT ASSUMPTIONS AND ACCOUNTING POLICIES AND
ACCOUNTANTS' REPORT
NORTHBOROUGH REALTY HOLDINGS, LLC
PROJECTED FINANCIAL STATEMENTS UNDER
THE HYPOTHETICAL ASSUMPTIONS IN NOTE 1
ACTUAL HISTORICAL RESULTS STATEMENTS
OF RETAINED EARNINGS/CAPITAL
1997 1998 1999
RETAINED EARNINGS/
ACCUMULATED CAPITAL-BEGINNING 2,066 227,924 181,455
NET EARNINGS 736,858 235,531 248,502
LESS DISTRIBUTIONS (511,000) (282,000) (340,000)
RETAINED EARNINGS/
ACCUMULATED CAPITAL-ENDING 227,924 181,455 89,957
SEE SUMMARY OF SIGNIFICANT ASSUMPTIONS
AND ACCOUNTING POLICIES AND
ACCOUNTANTS' REPORT
NORTHBOROUGH REALTY HOLDINGS, LLC
FORECASTED FINANCIAL STATEMENTS
UNDER THE HYPOTHETICAL ASSUMPTIONS IN NOTE 1
ACTUAL HISTORICAL RESULTS
STATEMENTS OF NET INCOME
1997 1998 1999
REVENUES:
RENTAL INCOME 3,788 37,714 42,724
DEBT COLLECTION FEE INCOME 4,500 31,327
INTEREST AND MARKET DISCOUNT INCOME 600,116 175,741 221,442
GAIN ON SALES 259,492 35,349
INVESTMENT INTEREST INCOME 5,855 8,020 4,529
TOTAL INCOME 869,251 261,324 300,022
GENERAL & ADMINISTRATIVE EXPENSES:
SALARIES & WAGES
OFFICERS SALARIES
PAYROLL TAXES
HEALTH INSURANCE BENEFITS
RENT
UTILITIES
INSURANCE 8,060 2,338 1,388
OFFICE SUPPLIES & EXPENSE 4,443 645 877
OFFICE EQUIPMENT
POSTAGE 177 363
TELEPHONE & INTERNET
ACCOUNTING & AUDIT 3,450 4,050 18,625
LEGAL 39,181 0 6,954
OTHER PROFESSIONAL FEES 23,973 5,000 1,263
TRAVEL & ENTERTAINMENT 30,104 3,979 1,507
AMORTIZATION
RENTAL EXPENSES 8,679 18 12,253
DEPRECIATION 214 3,651 5,996
TAXES 250 926 250
INTEREST EXPENSE 12,860 2,253 1,984
MISCELLANEOUS 1,179 2,756 60
TOTAL GENERAL & ADMINISTRATIVE EXPENSES 132,393 25,793 51,520
INCOME BEFORE TAXES 736,858 235,531 248,502
PROVISION FOR INCOME TAXES 0 0 0
NET INCOME 736,858 235,531 248,502
CUMULATIVE NET INCOME
SEE SUMMARY OF SIGNIFICANT ASSUMPTIONS
AND ACCOUNTING POLICIES AND
ACCOUNTANTS' REPORT
NORTHBOROUGH REALTY HOLDINGS, LLC
FORECASTED FINANCIAL STATEMENTS
UNDER THE HYPOTHETICAL ASSUMPTIONS IN NOTE 1
ACTUAL HISTORICAL RESULTS
STATEMENTS OF CASH FLOW
1997 1998 1999
OPERATING ACTIVITIES
NET INCOME 736,858 235,531 248,502
ADD:
DEPRECIATION 214 3,651 5,996
AMORTIZATION 0 0 0
737,072 239,182 254,498
ADJUSTMENTS:
ACCOUNTS PAYABLE
ACCRUED EXPENSES 6,443 (2,526) 15,000
ACCRUED INCOME TAXES 0 0 0
TOTAL FROM OPERATIONS 743,515 236,656 269,498
INVESTING ACTIVITIES:
ACQUISITION OF FIXED ASSETS (167,363) (7,212) 0
INVESTMENT IN LOAN PORTFOLIO-NET 148,999 (287,202) (107,568)
INVESTMENTS AND MARKETABLE SECURITIES (206,355) 105,938 (4,583)
OTHER 0 (223) 0
TOTAL FROM INVESTING ACTIVITIES (224,719) (188,699) (112,151)
FINANCING ACTIVITIES:
PROCEEDS FROM BORROWINGS:
NOTE PAYABLE 139,000
LINE 230,000
REPAYMENT OF DEBT:
NOTE PAYABLE (2,318)
LINE (193,000)
DIVIDENDS DISTRIBUTIONS PAID (511,000 (282,000) (100,000)
ISSUANCE OF PREFERRED STOCK 0 0 0
TOTAL FROM FINANCING ACTIVITIES (511,000) (52,000) (156,318)
INCREASE(DECREASE) IN CASH 7,796 (4,043) 1,029
CASH BEGINNING OF YEAR 1,128 8,924 4,881
CASH END OF YEAR 8,924 4,881 5,910
CASH PAID FOR:
INTEREST 12,860 2,253 3,999
TAXES 250 926 250
SEE SUMMARY OF SIGNIFICANT ASSUMPTIONS
AND ACCOUNTING POLICIES AND
ACCOUNTANTS' REPORT
NORTHBOROUGH REALTY HOLDINGS, LLC
FORECASTED FINANCIAL STATEMENTS
UNDER THE HYPOTHETICAL ASSUMPTIONS IN NOTE 1
YEAR YEAR YEAR
BALANCE SHEETS ONE TWO THREE
BEGINNING TOTAL TOTAL TOTAL
ASSETS
CURRENT ASSETS:
CASH 5,910 368,830 691,981 271,019
INVESTMENTS AND MARKETABLE SECURITIES 105,000 529,272 191,055 200,830
LOAN PORTFOLIO 545,772 2,322,492 3,395,955 5,015,529
TOTAL CURRENT ASSETS 656,682 3,220,593 4,278,991 5,487,378
FIXED ASSETS:
LAND 26,000 26,000 26,000 26,000
BUILDINGS AND IMPROVEMENTS 148,575 1,148,575 1,148,575 1,148,575
TOTAL FIXED ASSETS 174,575 1,174,575 1,174,575 1,174,575
LESS ACCUMULATED DEPRECIATION 9,718 27,192 56,270 85,348
NET FIXED ASSETS 164,857 1,147,383 1,118,305 1,089,227
OTHER ASSETS:
INTANGIBLES 0 50,000 50,000 50,000
LESS ACCUMULATED AMORTIZATION 0 9,167 19,167 29,167
TOTAL OTHER ASSETS 0 40,833 30,833 20,833
TOTAL ASSETS 821,539 4,408,809 5,428,129 6,597,438
LIABILITIES & STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
ACCOUNTS PAYABLE 0 10,000 15,000 20,000
NOTES PAYABLE-CURRENT 27,336 27,336 27,336 27,336
NOTES PAYABLE-LINE 37,000 0 0 0
OTHER CURRENT LIABILITIES 257,650 257,650 257,650 257,650
INCOME TAXES 250 282,277 424,316 315,191
TOTAL CURRENT LIABILITIES 322,236 577,263 724,302 620,177
OTHER LIABILITIES:
NOTE PAYABLE 136,682 109,346 82,009 54,673
LESS CURRENT PORTION 27,336 27,336 27,336 27,336
TOTAL OTHER LIABILITIES 109,346 82,010 54,673 27,337
STOCKHOLDERS'/ OWNERS' EQUITY:
COMMON STOCK/CAPITAL 300,000 300,000 300,000 300,000
PREFERRED STOCK 3,000,000 3,000,000 3,000,000
RETAINED EARNINGS/ACCUMULATED CAPITAL 89,957 89,957 449,537 1,349,155
CURRENT PERIOD P&L 0 359,580 899,618 1,300,770
TOTAL STOCKHOLDERS' EQUITY 389,957 3,749,537 4,649,155 5,949,925
TOTAL LIABILITIES &
STOCKHOLDERS'EQUITY 821,539 4,408,809 5,428,129 6,597,438
SEE SUMMARY OF SIGNIFICANT ASSUMPTIONS
AND ACCOUNTING POLICIES AND
ACCOUNTANTS' REPORT
NORTHBOROUGH REALTY HOLDINGS, LLC
FORECASTED FINANCIAL STATEMENTS YEAR YEAR YEAR
UNDER THE HYPOTHETICAL ASSUMPTIONS IN NOTE 1 ONE TWO THREE
STATEMENTS OF NET INCOME
TOTAL TOTAL TOTAL
REVENUES:
RENTAL INCOME 92,000 180,000 216,000
DEBT COLLECTION FEE INCOME 18,000 18,000 18,000
INTEREST AND MARKET DISCOUNT INCOME 165,095 358,388 514,238
GAIN ON SALES 736,640 1,738,268 2,490,213
INVESTMENT INTEREST INCOME 74,272 11,783 9,775
TOTAL INCOME 1,086,007 2,306,440 3,248,226
GENERAL & ADMINISTRATIVE EXPENSES:
SALARIES & WAGES 45,000 112,500 180,000
OFFICERS SALARIES 144,000 174,000 204,000
PAYROLL TAXES 18,900 28,650 38,400
HEALTH INSURANCE BENEFITS 45,600 57,300 69,000
RENT 36,000 50,400 64,800
UTILITIES 2,400 4,200 6,000
INSURANCE 2,400 6,000 9,600
OFFICE SUPPLIES & EXPENSE 9,600 16,800 24,000
OFFICE EQUIPMENT 10,000 20,000 10,000
POSTAGE 2,400 6,000 9,600
TELEPHONE & INTERNET 4,800 12,000 19,200
ACCOUNTING & AUDIT 12,000 18,000 24,000
LEGAL 45,000 105,000 165,000
OTHER PROFESSIONAL FEES 6,000 6,000 6,000
TRAVEL & ENTERTAINMENT 6,000 12,000 18,000
AMORTIZATION 9,167 10,000 10,000
RENTAL EXPENSES 15,000 19,200 24,000
DEPRECIATION 17,474 29,078 29,078
TAXES 0 0 0
INTEREST EXPENSE 10,359 8,052 5,744
MISCELLANEOUS 1,800 4,800 9,000
TOTAL GENERAL & ADMINISTRATIVE EXPENSES 443,900 699,980 925,422
INCOME BEFORE TAXES 642,107 1,606,460 2,322,804
PROVISION FOR INCOME TAXES 282,527 706,843 1,022,034
NET INCOME 359,580 899,618 1,300,770
CUMULATIVE NET INCOME
SEE SUMMARY OF SIGNIFICANT ASSUMPTIONS
AND ACCOUNTING POLICIES AND
ACCOUNTANTS' REPORT
NORTHBOROUGH REALTY HOLDINGS, LLC
FORECASTED FINANCIAL STATEMENTS YEAR YEAR YEAR
UNDER THE HYPOTHETICAL ASSUMPTIONS IN NOTE 1 ONE TWO THREE
STATEMENTS OF CASH FLOW
TOTAL TOTAL TOTAL
OPERATING ACTIVITIES
NET INCOME 359,580 899,618 1,300,770
ADD:
DEPRECIATION 17,474 29,078 29,078
AMORTIZATION 9,167 10,000 10,000
386,221 938,696 1,339,848
ADJUSTMENTS:
ACCOUNTS PAYABLE 10,000 5,000 5,000
ACCRUED EXPENSES 0 0 0
ACCRUED INCOME TAXES 282,027 142,039 (109,125)
TOTAL FROM OPERATIONS 678,248 1,085,734 1,235,723
INVESTING ACTIVITIES:
ACQUISITION OF FIXED ASSETS (1,000,000) 0 0
INVESTMENT IN LOAN PORTFOLIO-NET
(1,776,720)(1,073,463) (1,619,574)
INVESTMENTS AND MARKETABLE SECURITIES (424,272) 338,217 (9,775)
OTHER (50,000) 0 0
TOTAL FROM INVESTING ACTIVITIES (3,250,992) (735,247) (1,629,349)
FINANCING ACTIVITIES:
PROCEEDS FROM BORROWINGS:
NOTE PAYABLE 0 0 0
LINE 0 0 0
REPAYMENT OF DEBT:
NOTE PAYABLE (27,336) (27,336) (27,336)
LINE (37,000) 0 0
DIVIDENDS DISTRIBUTIONS PAID 0 0 0
ISSUANCE OF PREFERRED STOCK 0 0 0
TOTAL FROM FINANCING ACTIVITIES 2,935,664 (27,336) (27,336)
INCREASE(DECREASE) IN CASH 362,920 323,151 (420,962)
CASH BEGINNING OF YEAR 5,910 368,830 691,981
CASH END OF YEAR 368,830 691,981 271,019
CASH PAID FOR:
INTEREST 10,359 8,052 5,744
TAXES 500 564,804 1,131,158
SEE SUMMARY OF SIGNIFICANT ASSUMPTIONS
AND ACCOUNTING POLICIES AND
ACCOUNTANTS' REPORT
NORTHBOROUGH REALTY HOLDINGS, LLC
FORECASTED FINANCIAL STATEMENTS YEAR YEAR YEAR
UNDER THE HYPOTHETICAL ASSUMPTIONS IN NOTE 1 ONE TWO THREE
SUPPLEMENTAL SCHEDULES
TOTAL TOTAL TOTAL
LOAN PORTFOLIO:
BALANCE BEGINNING 545,772 2,322,492 3,395,955
PURCHASES-FROM CAPITAL INVESTMENT 1,650,000 350,000 0
PURCHASES-REINVESTMENT 1,600,000 4,200,000 6,600,000
LIQUIDATIONS
(1,473,280) (3,476,537) (4,980,426)
BALANCES ENDING 2,322,492 3,395,955 5,015,529
INCOME EARNED:
ON OUTSTANDING BALANCE 165,095 358,388 514,238
ON LIQUIDATION 736,640 1,738,268 2,490,213
INVESTMENTS
BALANCE BEGINNING 105,000 529,272 191,055
ADDITIONS 3,000,000 0 0
REDUCTIONS:
TO LONG-TERM INVESTMENTS (1,000,000) 0 0
TO LOAN PORTFOLIO (1,650,000) (350,000) 0
INCOME 74,272 11,783 9,775
BALANCE ENDING 529,272 191,055 200,830
INCOME 76,477 10,374 9,815
INCOME TAX LIABILITIES:
BALANCE BEGINNING 250 282,277 424,316
ACCRUED TAX LIABILITY 282,527 706,843 1,022,034
ESTIMATED PAYMENT (500) (564,804) (1,131,158)
BALANCE ENDING 282,277 424,316 315,191
ACCOUNTS PAYABLE
BALANCE BEGINNING 0 10,000 15,000
INCREASE (DECREASE) 10,000 5,000 5,000
BALANCE ENDING 10,000 15,000 20,000
SEE SUMMARY OF SIGNIFICANT ASSUMPTIONS
AND ACCOUNTING POLICIES AND
ACCOUNTANTS' REPORT
NORTHBOROUGH REALTY HOLDINGS, LLC
FORECASTED FINANCIAL STATEMENTS YEAR YEAR YEAR
UNDER THE HYPOTHETICAL ASSUMPTIONS IN NOTE 1 ONE TWO THREE
SUPPLEMENTAL SCHEDULES
TOTAL TOTAL TOTAL
NOTES PAYABLE
LINE
BALANCE BEGINNING 37,000 0 0
PROCEEDS 0 0 0
REPAYMENTS (37,000) 0 0
BALANCE ENDING 0 0 0
INTEREST 9.50% 0 0 0
NOTE PAYABLE-TERM
BALANCE BEGINNING 136,682 109,346 82,009
PROCEEDS 0 0 0
REPAYMENTS 60 (27,336) (27,336) (27,336)
BALANCE ENDING 109,346 82,009 54,673
INTEREST 8.50% 10,359 8,036 5,712
TOTAL INTEREST 10,359 8,036 5,712
SEE SUMMARY OF SIGNIFICANT
ASSUMPTIONS AND ACCOUNTING POLICIES
AND ACCOUNTANTS' REPORT
Northborough Realty Holdings, LLC
Notes to Forecasted Financial Statements
January 1, 2000
1. Nature of Forecasted Financial Statements
The accompanying forecasted financial statements of Northborough Realty
Holdings, LLC presents information, to the best of managements' knowledge
and belief on the financial condition and results of operations for the
forecast period. Accordingly, the forecast reflects its judgment as of
January 1, 2000, the date of the forecast, of the expected conditions and
its expected course of action. The assumptions disclosed herein are those
that management believes are significant to the forecast. There will
usually be differences between forecasted and actual results, because
events and circumstances frequently do not occur as expected and those
differences may be material.
2. Organization:
Northborough Realty Holdings, LLC (the Company), started operations in
1996. The Company acquires distressed financial assets from financial
institutions at discounts. It manages these assets either by collecting the
debts, renegotiating terms, selling or liquidating the assets. The Company
has historically operated as a Limited Liability Company (LLC) and the
members have paid the entity income taxes.
3. Forecasted Capital Contribution - $3,000,000:
The accompanying forecasted financial statements anticipate a preferred
minority investment of $3,000,000. It is forecasted that the corporate
structure will be changed and the entity will assume the obligations to pay
income taxes at corporate rates. The preferred minority investment is
classified as preferred stock. No preferred dividend has been included in
these forecasts.
4. Other Significant Forecasted Assumptions:
A. Investments and Marketable Securities:
Idle cash is assumed to be invested in short term marketable securities
that will earn a 5% return recorded as investment interest income.
B. Loan Portfolio:
It is anticipated that it will take at least 15 months to fully invest the
forecasted capital contribution into working assets. The loan portfolio is
expected to liquidate 10% of its portfolio per month and realize a 50%
margin on liquidation of assets. The loan portfolio is anticipated to earn
ongoing a 12% return on book value during its holding period.
Northborough Realty Holdings, LLC
Notes to Forecasted Financial Statements
January 1, 2000
4. Other Significant Forecasted Assumptions: (Continued)
C. Fixed Assets:
In some cases the Company has foreclosed on real estate properties and held
the assets as long term investments. It is anticipated that $1,000,000 of
the capital contribution described in Note 2 would be invested in fixed
assets producing rental income. These assets are depreciated over a 40 year
life.
D. Income Taxes:
As described in Note 2 it is anticipated that the Company will change its
tax status and incur the liability for income taxes that have historically
been paid at the member level. A 44% Federal and State income tax rate has
been assumed.
E. Stockholders Equity:
As stated above the Company has historically operated as a limited
liability company. The Company was originally capitalized with $300,000
from the members. Through 1999, the Company will have retained $252,000 of
accumulated capital which has been treated the same as retained earnings
for purposes of these forecasts. The actual accounting treatment may vary
depending on the corporate structure elected for the new entity.
F. New Loan Offices:
It is forecasted that the Company will open four new loan offices over the
three year forecasted period. Each satellite office will incur the
following increased annual costs plus a one time equipment cost of $10,000.
Salaries and Wages $45,000
Payroll Taxes 4,500
Fringe Benefits 7,800
Rent 9,600
Office Supplies 7,200
Telephone and Utilities 6,000
Insurance 2,400
Travel and Entertainment 3,000
$85,500
Northborough Realty Holdings, LLC
Notes to Forecasted Financial Statements
January 1, 2000
5. Spreadsheet Rounding Errors:
The accompanying forecasted financial statements use spreadsheet
calculations that may result in small rounding errors on column totals.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR
PLAN OF OPERATION
1. PLAN OF OPERATION FOR THE NEXT 6 MONTHS
The plan of operation for the next six months is to engage
in those activities described in Item 1 under the BUSINESS OF COMPANY
section. The corporate policy regarding these activities will be formed
through a generation of ideas and direction from a Board of Directors. The
day-to-day operations and decisions will be delegated to a senior
management team directed by a chief executive officer with counsel and
implementation from experienced officers. The four primary officers of the
Company who will be responsible for the day-to-day implementation of the
corporate policy and direction will be James R. Simmons, Scott B. Adams,
Richard Nadeau, Jr. and Kevin Gillis. All four were founding members of
Realty. Realty has been in the business of acquiring defaulted loan
obligations from financial institutions and collecting said obligations
through negotiation or foreclosure on the collateral securing the loan. Its
emphasis has been on purchasing individual assets from New England banks.
These assets are generally smaller loans ($150,000 to $300,000) which are
ripe for immediate restructure or conversion to foreclosure or refinance.
The Company's success will largely be driven by the proven experience of
its management who have already demonstrated the viability of the Company's
business plan through the experiences of Realty. The collective practical
experience of this group in the areas of business the Company will engage
in is important in the operations of the Company. Each brings a specific
set of skills and knowledge that include commercial banking, loan workout,
real estate, environmental liability and law. These individuals have
already developed the necessary contacts and demonstrated their abilities
with major financial institutions such that they are now called on a
regular basis to acquire individual or bulk sale assets. The principals are
critical as there is truly a "barrier of entry" into the Asset acquisition
business which has already been bridged by this group. Further, management
has developed a system of performing due diligence on these assets and a
proven formula for successful bidding. Realty has earned over $1.4 million
net profit on an original capital investment of $300,000 in its three and
one-half (3.5) years of operation, having experienced average rates of
return on equity of over fifty percent (50%). Realty has also identified
and acquired medium and long-term "performing"assets at significant
discounts which provide ongoing cash flow. These asset are typically loans
which had historic payment defaults, but which Realty has resurrected by
restructuring the payment provisions or convincing the borrower to
reinstate to avoid lose of the collateral.
2. NEED FOR ADDITIONAL FINANCING
No commitments to provide additional funds have been made by
management or other stockholders. Accordingly, there can be no assurance
that any additional funds will be available to the Company to allow it to
cover its expenses. However, given its current operations and extended
business plan, the Company has sufficient cash flow and line of credit
availability to continue to execute the business plan of the Company.
However, the proposed rate of growth and financial projections assume
raising $3,000,000 through the issuance and sale of convertible preferred
equity in the Company. If such capital is not raised through such an
offering, the Company's growth proportions may not be met. Nonetheless,
Realty would still have sufficient cash flow and debit availability to
continue along its historical operational history.
3. NEW ACCOUNTING PRONOUNCEMENTS
Statement of Financial Accounting Standards No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed of" ("SFAS 121") issued by the FASB, is effective for financial
statements for fiscal years beginning after December 15, 1995. The standard
establishes new guidelines regarding when impairment losses on long-lived
assets, which include plant and equipment, certain identifiable intangible
assets, and goodwill, should be recognized and how impairment losses should
be measured.
The Company does not expect adoption to have a material effect on
its financial position or results of operations.
Statement of Financial Accounting Standards No. 123, "Accounting
for Stock-Based Compensation" ("SFAS 123") issued by the FASB, is effective
for specific transactions entered into after December 15, 1995. The
disclosure requirements of SFAS 123 are effective for financial statements
for fiscal years beginning no later than December 15, 1995. The new
standard established a fair value method of accounting for stock-based
compensation plans and for transactions in which an entity acquires goods
or services from non-employees in exchange for equity instruments. The
Company does not expect adoption to have a material effect on its financial
position or results of operations.
CAUTIONARY STATEMENT
This Quarterly Statement on Form 10QSB contains statements relating to
future results of the Company (including certain projections and business
trends) that are "forward-looking statements" as defined in the Private
Securities Litigation Reform Act of 1995. Actual results may differ
materially from those projected as a result of certain risks and
uncertainties, including but not limited to changes in political and
economic conditions; domestic and foreign government spending, budgetary
and trade policies; Asset performance, successful development of new
business lines, and competition as well as other risks and uncertainties,
including but not limited to those described above in the discussion under
RISK FACTORS, and those detailed from time to time in the filings of the
Company with the Securities and Exchange Commission.
PART II OTHER INFORMATION
ITEM 1. Legal Proceedings
Neither the Registrant nor any of its affiliates are a
party, nor is any of their property subject, to material
pending legal proceedings that are not incidental to Registrant
and/or its affiliates' business. No material proceedings known
to be contemplated by governmental authorities.
ITEM 2. Changes in Securities
None
ITEM 3. Defaults Upon Senior Securities
None
ITEM 4. Submission of Matters to a Vote of Security Holders
None
ITEM 5. Other Information
None
ITEM 6. Exhibits and Reports on Form 8 K
a. Exhibits
Exhibit 27. Financial Data Schedule
b. Reports on Form 8 K
None
INDEX TO EXHIBITS
EXHIBIT NO DESCRIPTION
# 3.1 Articles of Incorporation of the Registrant, as
amended;
# 3.2 Bylaws of the Registrant;
# 4.1 Instruments Defining Rights of Security Holders/Minutes of
Annual/Special Meetings of the Registrant;
# 10.1 Issuance of Restricted Shares from Authorized Shares;
# 23.1 Consent of Nadeau & Simmons, P.C.;
x 27 Financial Data Schedule
x 99.1 Safe Harbor Compliance Statement
_______________________
x Filed herewith.
# Incorporated by reference from the Registrant's Registration
Statement filed on Form 10-SB on or about April 14, 2000.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
NORTHBOROUGH HOLDINGS, INC.
/s/ Nadeau & Simmons, P.C.
DATE: November 14, 2000 By: NADEAU & SIMMONS, P.C.
Title: Filing Agent