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 March 31, 2002
periods ended June 30, 2002 and
September 30, 2002
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)
2
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, 2002.
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.
3
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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
March 31, 2002
ASSETS
Current Assets
Checking/Savings $ 73,880.97
Total Current Assets $ 73,880.97
Other Assets $ 1,121,902.84
-----------------
TOTAL ASSETS $ 1,195,783.81
LIABILITIES & EQUITY
Liabilities
Current Liabilities $ 0.00
Other Current Liabilities
Accrued interest payable 637.81
Accrued Accounts payable 4,986.24
Textron Line of Credit 751,305.82
Security Deposit 2,650.00
------------------
Total Other Current Liabilities $ 759,579.87
------------------
Total Current Liabilities $ 759,579.87
------------------
Total Liabilities $ 759,579.87
Equity
Opening Balance Equity $ 0.96
Retained Earnings 413,057.21
Net Income 23,145.77
Total Equity 436,203.94
Total Liabilities and Equity $ 1,195,783.81
NORTHBOROUGH HOLDINGS, INC.
PROFIT & LOSS
March 31, 2002
Ordinary Income/Expense
Income $ 41,568.28
Total Income $ 41,568.28
Expense
Audit Expense $ 3,475.95
Advertisement 3,355.50
Appliance Expense 315.00
Bank Service Charges 52.50
Filing Fees 47.25
Insurance 1,720.05
Interest Expense
Loan Interest $ 5,000.00
------------
Total Interest Expense $ 5,000.00
Postage and Delivery 19.99
Professional Fees
Legal Fees $ 3,120.39
-------------
Total Professional Fees $ 3,120.39
Repairs
Building Repairs 504.35
-------------
Total Repairs $ 504.35
Supplies
Office 45.00
--------------
Total Supplies 45.00
Travel & Entertainment 125.00
Utilities
Gas and Electric 344.00
---------------
Total Utilities 344.00
---------------------
Total Expense $ 18,125.38
---------------------
Net Ordinary Income $ 23,442.90
Other Income/Expense
Other Income
Interest Income $ (297.13)
Total Other Income $ (297.13)
Net Other Income $ (297.13)
---------------------
NET INCOME $ 23,145.77
NORTHBOROUGH HOLDINGS, INC.
BALANCE SHEET
June 30, 2002
ASSETS
Current Assets
Checking/Savings $ 10,221.23
Total Current Assets $ 10,221.23
Other Assets $ 1,808,394.94
-----------------
TOTAL ASSETS $ 1,818,616.17
LIABILITIES & EQUITY
Liabilities
Current Liabilities $ 0.00
Other Current Liabilities
Loan from NRH 50,000.00
Accrued interest payable 637.81
Loan from Officers 50,000.00
Textron Line of Credit 1,267,194.08
Security Deposit 2,650.00
------------------
Total Other Current Liabilities $ 1,371,081.89
------------------
Total Current Liabilities $ 1,371,081.89
------------------
Total Liabilities $ 1,371,081.89
Equity
Opening Balance Equity $ 54.27
Retained Earnings 413,057.21
Net Income 34,422.80
Total Equity 447,534.28
Total Liabilities and Equity $ 1,818,616.17
NORTHBOROUGH HOLDINGS, INC.
PROFIT & LOSS
June 30, 2002
Ordinary Income/Expense
Income $ 80,292.76
Total Income $ 80,292.76
Expense
Audit Expense $ 3,475.95
Returned Deposited Item 691.71
Advertisement 3,355.50
Appliance Expense 315.00
Bank Service Charges 92.50
Filing Fees 301.75
Insurance 1,720.05
Interest Expense
Loan Interest $ 17,853.26
------------
Total Interest Expense $ 17,853.26
Licenses and Permits $ 1,775.00
Maintenance of R/E 1,072.00
Postage and Delivery 87.99
Professional Fees
Accounting Fees 13.76
Legal Fees $ 10,860.69
-----------------
Total Professional Fees $ 10,874.45
Repairs
Building Repairs 504.35
-------------
Total Repairs $ 504.35
Supplies
Office 45.00
Supplies-Other 26.00
--------------
Total Supplies 71.00
Taxes
Property $ 1,386.07
--------------
Total Taxes $ 1,386.07
Travel & Entertainment 476.79
Utilities
Gas and Electric 728.00
---------------
Total Utilities 728.00
--------------------
Total Expense $ 45,572.83
---------------------
Net Ordinary Income $ 34,719.93
Other Income/Expense
Other Income
Interest Income $ (297.13)
Total Other Income $ (297.13)
Net Other Income $ (297.13)
---------------------
NET INCOME $ 34,422.80
NORTHBOROUGH HOLDINGS, INC.
BALANCE SHEET
September 30, 2002
ASSETS
Current Assets
Checking/Savings $ 7,747.79
Total Current Assets $ 7,747.79
Other Assets $1,897,362.88
-----------------
TOTAL ASSETS $1,905,110.67
LIABILITIES & EQUITY
Liabilities
Current Liabilities $ 0.00
Other Current Liabilities
Loan from NRH 45,348.00
Accrued interest payable 637.81
Loan from Officers 100,000.00
Textron Line of Credit 1,345,300.42
Security Deposit 2,650.00
------------------
Total Other Current Liabilities $1,493,936.23
------------------
Total Current Liabilities $1,493,936.23
------------------
Total Liabilities $1,493,936.23
Equity
Distributions $ (36,718.00)
Opening Balance Equity 54.54
Retained Earnings 413,057.21
Net Income 34,780.69
Total Equity 411,174.44
Total Liabilities and Equity $1,905,110.67
NORTHBOROUGH HOLDINGS, INC.
PROFIT & LOSS
September 30, 2002
Ordinary Income/Expense
Income $ 165,388.17
Total Income $ 165,388.17
Expense
Audit Expense $ 3,475.95
Returned Deposited Item 6,351.77
Advertisement 3355.50
Appliance Expense 315.00
Bank Service Charges 457.95
Filing Fees 381.05
Insurance 8990.56
Interest Expense
Loan Interest $ 40,569.60
------------
Total Interest Expense $ 40,569.60
Licenses and Permits $ 7,100.00
Maintenance of R/E 1,847.00
Postage and Delivery 187.10
Professional Fees
Accounting Fees 176.76
Legal Fees $ 22,858.77
-----------------
Total Professional Fees $ 50,035.53
Rent 1,150.00
Repairs
Building Repairs 643.21
-------------
Total Repairs $ 643.21
Supplies
Office 45.00
Supplies-Other 26.00
--------------
Total Supplies 71.00
Taxes
Property $ 2,191.87
--------------
Total Taxes $ 2,191.87
Telephone 1,133.89
Travel & Entertainment 1,315.37
Utilities
Gas and Electric 728.00
---------------
Total Utilities 728.00
---------------------
Total Expense $ 130,300.35
---------------------
Net Ordinary Income $ 35,087.82
Other Income/Expense
Other Income
Interest Income $ (297.13)
Total Other Income $ (297.13)
Other Expenses 10.00
Net Other Income $ (307.13)
---------------------
NET INCOME $ 34,780.69
NORTHBOROUGH HOLDINGS, INC. AND SUBSIDIARY
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2001 AND 2000
PAGE
Independent Auditors' Report 1
Consolidated Balance Sheets 2
Consolidated Statements of Operations 3
Consolidated Statements of Changes in Equity 4
Consolidated Statements of Cash Flows 5
Notes to Consolidated Financial Statements 6
INDEPENDENT AUDITORS' REPORT
To the Stockholders
Northborough Holdings, Inc. and Subsidiaries
Providence, Rhode Island
We have audited the accompanying consolidated balance sheets of Northborough
Holdings, Inc. and Subsidiary as of December 31, 2001 and 2000, and the
related consolidated statements of operations, changes in equity, and cash
flows for the years then ended. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated 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 consolidated financial
statements are free of material misstatement. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall consolidated financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of
Northborough Holdings, Inc. and Subsidiary as of December 31, 2001 and 2000,
and the results of its operations and its cash flows for the years then
ended in conformity with generally accepted accounting principles.
_________________________________
ROONEY, PLOTKIN & WILLEY, LLP
January 25, 2002
NORTHBOROUGH HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
<CPTION>
December 31,
2001 2000
----------- ---------
ASSETS
Cash $ 12,341 $ 50,456
Notes Receivable (Note 2) - 120,325
Mortgage Loans and Other Receivable, Net (Note 3) 765,125 258,725
Real Estate Under Operating Lease, Net (Notes 4 and 9) 154,910 158,893
Income Tax Receivable 24,105 -
Other Assets (Note 5) 300 300
----------- ---------
Total Assets $ 956,781 $ 588,699
=========== ==========
LIABILITIES AND EQITY
Liabilities:
Note Payable, Bank (Note 5) $ 339,990 $ -
Income Taxes Payable (Note 6) - 123,767
Accrued Expenses 20,325 14,500
Mortgage Note Payable(Note 7) 108,875 122,783
Security Deposit 2,650 2,650
----------- -----------
Total Liabilities 471,840 263,700
----------- -----------
Equity: (Note 1A)
Common Stock (Note 9) 1,200 1,200
Additional Paid-In Capital 132,729 132,729
Retained Earnings 351,012 191,070
----------- -----------
Total Equity 956,781 324,999
----------- -----------
Total Liabilities and Equity $ 956,781 588,699
=========== ===========
The accompanying notes are an integral part of
these consolidated financial statements.
NORTHBOROUGH HOLDINGS, INC. AND SUBSIDIARY
Consolidated Statements of Operations
Years Ended December 31,
2001 2000
----------- ------------
Operating Revenues:
Interest Income $ 229,537 305,204
Fee and Other Income 24,577 9,803
Gain on Disposition of Mortgage Loans 151,283 140,689
---------- -----------
Total Operating Revenues 405,397 455,696
General and Administrative Expenses 135,902 73,193
---------- -----------
Income from Operations 269,495 382,503
---------- -----------
Other Income (Expense):
Rental Income, Net (Note 9) 20,298 21,011
Interest Income on Cash 692 5,710
Interest on Note Payable, (Note 5) (31,915) (18,415)
---------- -----------
Total Other Income (Expense) (10,925) 8,306
----------- ------------
Income before Provision for Income Taxes 258,570 390,809
Provision for Income Taxes (Note 6) 98,628 123,767
---------- -----------
Net Income $ 159,942 $ 267,042
========== ===========
The accompanying notes are an integral part of these
consolidated financial statements.
NORTHBOROUGH HOLDINGS, INC. AND SUBSIDIARY
Consolidated Statements of Changes in Equity
Additional
Common Paid-In Retained Members'
Stock Capital Earnings Equity Total
----------- ------------- ------------ ----------- ----------
Balance, December 31, 1999 $ - $ - $ - $ 389,957 $ 389,957
Net Income Prior to Exchange
of Members' Equity for
Common Stock - - - 75,972 75,972
Distributions to Members
Prior to Exchange - - - (332,000) (332,000)
----------- ------------- ------------ ------------ -----------
Subtotal Members' Equity - - - 133,929 133,929
Exchange of Members'
Equity for Common Stock 1,200 132,729 - (133,929) -
Net Income, After Exchange
of Members' Equity
for Common Stock - - 191,070 - 191,070
----------- ------------ ------------ ------------ -----------
Balance, December 31, 2000 $ 1,200 $ 132,729 $ 191,070 $ - $ 324,999
Net Income - - 159,942 - 159,942
----------- ------------ ------------ ----------- -----------
Balance, December 31, 2001 $ 1,200 $ 132,729 351,012 - $ 484,941
=========== ============ ============ =========== ===========
The accompanying notes are an integral part of
these consolidated financial statements.
NORTHBOROUGH HOLDINGS, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
Years Ended December 31,
2001 2000
------------ ------------
Operating Activities:
Net Income $ 159,942 $ 267,042
------------ ------------
Adjustments to Reconcile Net
Income to Net Cash
Provided by Operating Activities:
Depreciation 3,983 5,964
Bad Debt Expense - 7,999
Gain on Disposition of Mortgage Loans (151,283) (140,689)
Change in Operating Assets and Liabilities:
Mortgage Loans and Other Receivable (355,117) 310,743
Income Taxes Receivable (24,105) -
Accrued Expenses 5,825 (500)
Income Taxes Payable (123,767) 123,517
------------ ------------
Total Adjustments (664,464) 307,034
------------ ------------
Net Cash Provided by (Used In)
Operating Activities (484,522) 574,076
------------ ------------
Investing Activities:
Notes Receivable Originated (25,000) (75,000)
Repayments on Notes Receivable 145,325 63,669
Maturity of Certificate of Deposit - 100,000
Other - 4,700
------------ ------------
Net Cash Provided by Investing
Activities 120,325 93,369
------------ ------------
Financing Activities:
Net Change in Note Payable 339,990 (37,000)
Principal Payments on Mortgage Note Payable (13,908) (13,899)
Distributions to Members - (572,000)
------------ ------------
Net Cash Provided by (Used in)
Financing Activities 326,082 (622,899)
------------ ------------
Increase (Decrease) in Cash (38,115) 44,546
Cash, Beginning of Year 50,456 5,910
------------ ------------
Cash, End of Year $ 12,341 50,456
============ ============
Supplemental Disclosures of Cash Flow
Information:
Cash Paid During the Year for Interest $ 29,804 $ 3,999
============ ============
Supplemental Disclosures of Non-Cash Investing and Financial Activities:
During 2000 the Company issues common stock of $1,200 and recorded additional
paid-in capital of $132,729 in an exchange for members' equity as part of a
reorganization of the Company.
The accompanying notes are an integral part of these consolidated financial
statements.
NORTHBOROUGH HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2001 and 2000
1. Summary of Operations and Significant Accounting Policies:
A. Organization and Principles of Consolidation:
The consolidated financial statements include Northborough
Holdings, Inc. (NHI), a Colorado corporation, and its wholly
owned subsidiaries, Northborough Capital Partners, LLC (NCP)
and Northborough Realty Holdings, LLC (NRH), Rhode Island
limited liability companies.
NHI was organized on November 20, 1999 to become the holding
company for NCP. On March 13, 2000, NHI acquired full
ownership of NCP in an exchange of common stock and additional
paid-in capital for members' equity.
NCP was organized on May 29, 1996 as Northborough Realty
Holdings, LLC. On July 11, 2001 its name was changed to
Northborough Capital Partners, LLC. On September 21, 2001
NCP elected to transfer real property located in Concord, NH
and the mortgage note payable associated with the property to
the newly created NRH. NCP terminates on or before May 29, 2046.
NRH was organized on July 11, 2001 as a subsidiary of NHI to
hold real property located in Concord, NH and the related
mortgage note payable.
NHI, NCP, and NRH are collectively referred to as "the Company".
All significant inter-company balances and transactions have
been eliminated in consolidation.
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.
1. Summary of Operations and Significant Accounting Policies: (Continued)
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. At December 31, 2001 there are no outstanding notes
receivable originated by the Company. At December 31, 2000 management
believed that the value of such collateral is in excess of the notes
receivable and therefore, no allowance was provided.
C. Mortgage Loans and Other Receivable, Net:
Mortgage loans and other receivable represent notes and other financial
assets acquired at a discount and recorded at cost. All mortgage loans
and the other receivable are collateralized by commercial or residential
property. Management believes that the value of such collateral is in
excess of cost as of December 31, 2001 and 2000 and therefore, no
allowance has been provided.
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.
1. Summary of Operations and Significant Accounting Policies: (Continued)
F. Income Taxes:
The Company's provision for income taxes for 2001 is based on
the distributive income of NCP and NRH to NHI. All activity
of NCP and NRH will be reported on the income tax return of
NHI as NCP and NRH are disregarded as entities separate from NHI.
The Company's provision for income taxes for 2000 is based on
NHI's share of the distributive income of NCP. NCP net income
for 2000 was allocated between the period prior to and subsequent
to the acquisition of NCP by NHI (see Note 1A) based on the
per-share, per-day ownership of NCP. Upon the acquisition of
NCP by NHI, NCP became disregarded as an entity separate from
NHI for income tax purposes.
Prior to the acquisition of NCP by NHI on March 13, 2000, NCP,
by unanimous consent of its members, elected to be treated as
a partnership for income tax purposes and as such was not taxed.
Under subchapter K of the Internal Revenue Code each member was
taxed separately on their distributive share of the Company's
income whether or not that income was actually distributed.
G. Use of Estimates:
The preparation of consolidated financial statements in conformity
with U.S. 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 consolidated
financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual amounts could differ
from those estimates.
2. Notes Receivable:
Notes receivable originated by the Company consisted of the
following at December 31, 2000:
10.00% note receivable of $56,000 due in
monthly principal installments of $467 plus
interest from July 1, 1998 to May 1,2001. The
note is due in full June 1, 2001. Secured by
real estate, personal guarantee and other business
assets. $ 41,325
2. Notes Receivable: (Continued)
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. 4,000
16.00% note receivable of $75,000 due in monthly
payments of interest only. The remaining principal
and interest on the loan is due in full January 2001.
Secured by real estate, other business assets, and a
personal guarantee. 75,000
Total Notes Receivable $ 120,325
3. Mortgage Loans and Other Receivable, Net:
Mortgage loans and other receivable acquired at a discount consist of
the following:
2001 2000
Original Principal Amount $ 1,738,315 $ 407,720
Unamortized Discount (973,190) (148,995)
Mortgage Loans and Other Receivable, Net $ 765,125 $ 258,725
Original loans consist of the following at December 31, 2001:
Principal Unamortized
Amount Discount
10.00% mortgage loan, due 2002 $ 71,161 $ 54,557
10.50% mortgage loan, due 2012 29,100 20,658
8.50% mortgage loan, due 1998 56,018 6,846
7.28% mortgage loan, due 1997 142,121 51,343
9.50% mortgage loan, due 1997 750,000 678,750
Prime plus 2% mortgage loan, due 1995 22,731 308
11.00% mortgage loan, due 2003 243,575 43,120
10.00% mortgage loan, due 2001 135,364 (636)
9.50% mortgage loan, due 1994 258,160 108,159
Other non-interest bearing
secured receivable, due 1995 30,085 10,085
Totals $ 1,738,315 $ 973,190
3. Mortgage Loans and Other Receivable, Net: (Continued)
Original loans consist of the following at December 31, 2000:
Principal Unamortized
Amount Discount
9.05% mortgage loan, due 1998 $ 191,220 $ 635
10.00% mortgage loan, due 2002 144,261 110,600
10.50% mortgage loan, due 2012 34,713 24,641
10.50% mortgage loan, due 2002 7,441 3,034
Other non-interest bearing
secured receivable, due 1995 30,085 10,085
Totals $ 407,720 $ 148,995
The discounts are based on imputed interest rates ranging from
7.28% to 11.00%.
4. Real Estate Under Operating Lease, Net:
Real estate under operating lease consists of the following:
2001 2000
Land and Land Improvements $ 60,075 $ 60,075
Building and Improvements 114,500 114,500
Subtotal 174,575 174,575
Less Accumulated Depreciation 19,665 15,682
Real Estate Under Operating Lease, Net $ 154,910 $ 158,893
The Company is a lessor of the above real estate (see Note 9.)
5. Note Payable:
On July 16, 2001 the Company entered into a $2,000,000 revolving
credit facility with a financial institution. Interest on the
demand line-of-credit is payable monthly and is at the lender's
base rate plus 2.5%. The interest rate was 7.25% at
December 31, 2001. The credit facility is subject to certain
covenant provisions including, but not limited to, maintenance
of a debt to worth ratio and an operating cash flow to debt
service ratio. It is secured by all of the assets of the Company
and the personal guarantee of the stockholders.
5. Note Payable: (Continued)
Prior to entering into the revolving credit facility agreement
described above, the Company had a combined $1,000,000 credit
facility consisting of a $750,000 demand line-of-credit and
$250,000 available on a term loan arrangement with a local bank.
Interest on the demand line-of-credit was payable monthly at
the lender's base rate, which was 9.50% at December 31, 2000.
The demand line of credit and term loan were closed in 2001.
6. Provision for Income Taxes:
The components of the provision for income taxes are as follows:
2001 2000
Current:
Federal $ 74,850 $ 95,141
State 23,778 28,626
Total Provision for Income Taxes $ 98,628 $ 123,767
7. Mortgage Note Payable:
The mortgage is due to a local bank in monthly principal
installments of $1,159 plus interest at 8.59%. 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 $42,689 and $29,804 at
December 31, 2001 and 2000, respectively. The mortgage note
payable matures as follows:
Year ending December 31,
2002 $ 13,908
2003 13,908
2004 81,059
$ 108,875
8. Capital Stock:
The capital stock of the Company at December 31, 2001 and 2000 is as follows:
2001 2000
Common Stock, $.001 Par Value
Authorized Shares 50,000,000 50,000,000
Issued and Outstanding Shares 1,200,000 1,200,000
Series A Convertible Preferred Stock,
$.001 Par Value
Authorized Shares 50,000,000 50,000,000
Issued and Outstanding Shares - -
The common stock and preferred stock are identical in all
respects except for certain rights held by preferred
stockholders in regard to any voluntary or involuntary
liquidation, dissolution, or winding-up of the Company.
9. Rental Income:
The Company leases its land, building and improvements
(see Note 4) 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 $3,250 and $3,050 for 2001 and
2000, respectively, and it increases $200 per year during the
initial lease term. Rental income for the years ended
December 31, 2001 and 2000 was $46,506 and $44,577, respectively
and is presented net of depreciation, property taxes, mortgage
interest (see Note 7), 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.
Future minimum rental receipts under this operating lease are
$49,054 for the year ending December 31, 2002.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR
PLAN OF OPERATION
1. PLAN OF OPERATION FOR THE NEXT 12 MONTHS
The plan of operation for the next twelve 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 Report on Form 10-QSB 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 or 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: July __, 2000 By: NADEAU & SIMMONS, P.C.
Title: Filing Agent