UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D,C 20549
FORM 10-KSB/A
[X] ANNUAL REPORT UNDER SECTION 13 OR 15 (d) THE
SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ending December 31, 1998
Commission File Number 21-16563-B
REII INCORPORATED
(Formerly BAP Acquisition Corp)
-------------------------------------------------------
(Exact Name of registrant as Specified in its Charter)
Delaware 51-0373976
---------------------------- -------------
(State Or other Jurisdiction of (IRS Employee ID No.)
Incorporation or Organization)
1051 Fifth Avenue North, Naples, Florida 34102-5818
---------------------------------------------------
(Address of Principal Executive Offices Zip Code)
(941)-261-3396
--------------------------------
(Registrant's Telephone Number
including Area Code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Sections 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceeding 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 [ ]
As of December 31, 1998 4,655,310 shares of common stock were outstanding
<PAGE>
TABLE OF CONTENTS
_______________________
PART 1 Page
ITEM 1 Description of Business 1
Competition 3
Mergers and/or Acquisition opportunities 3
Facilities 4
Employees 4
Industry Segments 4
Government Regulations 4
ITEM 2 Description Of Property 5
ITEM 3 Legal Proceedings 6
ITEM 4 Submission of Matters to a Vote of Security Holders 6
PART 11
ITEM 1 Market for Common Equity and Related Stockholder Matters 6
ITEM 2 Management's Discussion and Analysis of Financial
Condition and results of Operations 7
Independent Auditors Report 12
ITEM 3 Financial Reports 13
Notes to Consolidated Financial Statements 18
ITEM 4 Changes In Disagreements with accountants on Accounting
and Financial Matters 26
PART 111
ITEM 1 Directors, Executive Officers, Promoters, and Control
Persons 27
ITEM 2 Executive Compensation 28
ITEM 3 Security Ownership of Certain Beneficial Owners and
Management 30
ITEM 4 Certain Relationships and Related Transactions 30
PART IV
ITEM 1 Exhibits and reports on Form 8-K 32
Signatures 35
Exhibit 27
<PAGE>
PART 1
ITEM I DESCRIPTION OF BUSINESS
REII INCORPORATED (Formerly BAP Acquisition Corp.), a Delaware Corporation,
(hereinafter the" Company") was incorporated on August 24, 1994. On July
1,1995 the Company entered into an agreement to acquire 100% of the issued
shares and outstanding shares of Ricketts Enterprises International Inc., a
Florida Corporation (hereinafter "REI"), said acquisition was completed on
November 21, 1995.
REI was incorporated on February 23, 1993 as closely
held Sub-Chapter "S" Corporation to own and manage real estate properties,
both residential and commercial. The principal business activity of the
Company is currently carried on through its wholly owned REI subsidiary.
From date of incorporation to date of acquisition by the Company, REI's
Principal Officers, Directors and shareholders were Garfield H. Ricketts
and Una Ricketts husband and wife. One June 1, 1993. Mr. Garfield Ricketts
obtained his Florida Real Estate Broker's License and represents the
Company as its licensed real estate broker.
REI is a duly licensed Real Estate Corporation in the State of Florida,
and is presently active in the ownership, management and sale of Real
Estate in two States ( Florida, and Texas). In addition REI
is a member of the Naples Board of Realtors, and the Multiple Listing
Service, and the Naples Chamber Of Commerce.
REI the Company currently owns seven single family residences,
five residential duplexes (10 units) and three vacant building lots zoned
for duplexes on which it plans to build rental properties as soon as
construction and permanent financing can be arranged.
All of the improved properties are rented to third party tenants.
The addition of three new rental properties (6 units), in the event the
Company is successful in financing and building said units, will further
enhance the gross income of the company. AMSOUTH BANK has agreed
to finance the construction of six units on the Company's vacant building
lots with a construction loan of $223,000.00, however no action has
been taken to date reagrding the construction of these units. An increase in
gross income does not guarantee to enhanced net income or profitability,
or that once built the Company will be able to lease the units
and produce income.
All the property owned by the Company to date resulted from the transfer to
REI of properties belonging to the President of the Company and REI,
Mr. Garfield Ricketts.
-1-
<PAGE>
REI has an agreement in principal represented by a Letter of Intent dated
January 15, 1996 to acquire an additional 20 residential rental Properties
and one commercial office property held by the former REI shareholder,
Mr. Ricketts. The properties are valued at approximately $1.9 million
dollars. Based on current rental income the gross annual income of the
Company would increase three fold. However an increase in gross income does
not necessarily equate to enhanced net income or profitability. At present,
in order to complete the acquisition of 20 residential rental properties
and the commercial property from former REI shareholders, the Company
must either qualify to assume the existing mortgages, arrange for new
mortgages, or pay cash for the properties being acquired.
There is no assurance that the Company will be able to raise cash, assume
mortgages, or arrange the financing required in order to exercise its
rights pursuant to the Letter of Intent dated January 5, 1996. All the
properties being acquired currently have sufficient net cash flow derived
from rental income to service existing or new mortgages. At present the
Company does not have in place any policies, procedures or controls with
respect to entering into future transactions with it's Officers, Directors,
Shareholders, or other related parties. However, it is anticipated that
once the 20 residential rental properties and the commercial property
are acquired that no other such transactions will be entered into
with related parties.
The long term goals of the Company are to acquire and develop commercial
and residential properties in southwest Florida, and to seek out and
acquire other businesses related to the real estate industry. Except for
the agreement with current shareholders for the acquisition of certain
income producing properties, the Company presently has no plan, proposal,
agreement, understanding or arrangement to acquire or merge with any
specific business or company. Future diversification will reduce the
risk of operating losses if there is a downturn in the real estate rental
market, and will enhance the Company's ability to increase income where
possible. The fact that the Company operates in two States rather than
in a single area of a single State, allows it to take advantage of all
opportunities that may be available in the areas in which it operates.
There are no immediate plans to widen the area of operation, however such
expansion may be considered in the future.
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<PAGE>
COMPETITION
The Company is a relatively new entrant to the residential rental market
in Florida, but since rental properties in the moderate income range in
the markets where the Company owns and manages properties are at a
premium, the Company is able to compete. In the Southwest Florida market,
the Company's prime operating area, trends indicate a continuing short
supply of residential properties available to service the non-tourist
rental market demand. Only 200 additional apartments are currently being
built each year, however current studies indicate that a minimum of
2500 rental units will be required over the next 5 years. Assuming 200
units per year continue to be built, it would take over 12 years before
current demand could be supplied. As a result, it is anticipated that the
continuing small growth rate will leave the residential rental market
under supplied for the foreseeable future, however, no assurance can be made
that such a shortage will continue to exist at such time as the Company
expands into the market or if any expansion at all will occur.
The Company is in no way exempt from competition and there is always the
possibility that major national developers will enter the market and
accelerate the production of non-tourist residential rental units that will
directly compete with the Company's expansion plan. Accelerated development
could also have a material effect on the rental income the Company generates
and the Company may have to lower its rental rates in order to compete.
Information regarding the current short supply of non-tourist residential
rental properties in the moderate income range is a result of the
Company's study of the marketplace where the Company has relied on
information and statistics generated by Boards of Realtors and Local
Governments including planning and zoning departments.
EVALUATION OF OPPORTUNITIES
Mr. Garfield Ricketts, the Company's President is a Licensed Real Estate
Broker, in the State of New York and Florida, and has been acquiring and
selling real estate since 1981. He built a significant portfolio of
residential properties in Florida, and Texas. As a result Mr. Ricketts has
the knowledge to seek out the best available opportunities for acquisition
by the Company. The fact that southwest Florida, at the present time, is
one of the fastest growing areas in the country, the Company believes that
substantial growth can be achieved by acquiring existing Income producing
properties as well as vacant land to be held for future development.
MERGER AND/OR ACQUISITION OPPORTUNITIES
Even though mergers can be a path to growth and development, the Company
will seek only mergers with or acquire firms that can provide audited
financial statements, and can easily fall within the scope of the Company's
present and future growth plans. There are certain risks which may arise
from any merger situation, especially where there is an opportunity to
acquire or merge with a relatively new operating entity, however all
efforts will be exercised to minimize such risks with careful examination
of the merging or to be acquired company, its audited financial statements,
as well as any analysis of the potential for success based on present and
potential competition and overall market conditions. However, there is no
assurance that the Company's financial ability will ever allow it to make
acquisitions, or complete a merger.
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<PAGE>
FACILITIES
The Company presently occupies approximately 1000 square feet of office
space in the city of Naples, Florida, 35 miles south of Fort Myers,
Florida. The property in which the office is located is presently owned
by the President of the Company. The terms under which the property may
be acquired are set forth in the letter of intent dated January 15, 1996.
It is anticipated that the office facility will be part of a package of
properties that will be acquired by the Company in the near future, but
there can be no assurance that such an acquisition can or will be made.
The office is fully supported with all the necessary computers, and
office equipment and furnitture required to efficiently conduct a real
estate property management operation. The Company pays the sum of
$575.00 monthly for the rental, maintenance and other costs of the
facility are paid by the Company. It is anticipated however that larger
facilities will be needed in the near future to accommodate anticipated
expansion of the Company's operations.
EMPLOYEES
Currently the Company has no full time staff employees. All current
workers are either contract employees or commission personnel.
The Company employs contract management and maintenance services for the
properties it manages in Texas. In Florida the Company is
managed by its President and other Company Officers. All property
maintenance work is accomplished via third party independent contractors.
There are no employment contracts with any individuals working for or
associated with the Company or its subsidiary.
INDUSTRY SEGMENTS
The Company is presently engaged in a single line of business,the rental,
and management of commercial and residential real estate and/or related real
estate products, and services.
GOVERNMENT REGULATIONS
The Company is regulated pursuant to the Securities Act of 1934, as well
as the rules and regulations promulgated by the Securities and Exchange
Commission. The Company is also subject to State Securities Laws in the
States where it operates as well as the States in which its securities may
be sold. In addition, since the Company is engaged in the purchase, sale,
rental and management of real estate, it is subject to the real property
laws and the rules and regulations enacted by the Real Estate Commissions
in each of the States in which it operates. As a result the Company is
required to retain the services of a Licensed Real Estate Broker to
represent the Company in its real estate activities in each of the States
in which it operates.
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<PAGE>
ITEM 2 DESCRIPTION OF PROPERTY
Description of the Company's properties are:
5330 Jennings Street,
Naples, FL 34112:-A three Bedroom, 2 bathroom, Living room, Dining
room, single family house with a single attached garage.
5326 Jennings Street,
Naples, FL 34112- A three Bedroom, 2 Bathroom, Living room, Dining
room, Single Family house with a single attached garage
5450 Hardee Street,
Naples, FL 34112:-A three Bedroom, 2 Bathroom, Living room, Dining
room, Family room, single family house.
5238/5240 Hardee Street,
Naples, FL 34112:-A Duplex consisting of 2 two Bedroom, 1 Bathroom
living units.(2 units)
4603 A/B Orchard Lane,
Naples, FL 34112:- A duplex consisting of 2 Two bedroom, 1 Bathroom
Living units. (2 units)
17605 North Hagen DR,
Houston Texas:- A Three Bedroom, 2 Bathroom, Living room, Dining
room single family house with a two car garage attached.
17539 North Hagen Dr.
Houston Texas:- A three Bedroom, 2 Bathroom, Living room, Dining
room, single family house with a two car garage attached.
Unit 4, block 140, Lot 10,
Golden Gate, Florida 34116:-A building lot zoned for two residential
units. (Duplex)
Unit 4, Block 141, Lot 10,
Golden Gate, FLorida 34116:-A building lot zoned for two residential
units. (Duplex)
Unit 6, Block 186, Lot 6,
Golden Gate, Florida 34116:-A building lot zoned for two residential
Units (Duplex)
222 Willoughby Drive,
Naples FL 34103:- Three Bedrooms, 2 1/2 Bathrooms, living room, Dining
room, single family house with a two car garage attached, and a
screened below ground pool.
205 SW 33rd Street,
Cape Coral, FL 33991:-A three bedroom, 2 Bathroom, Living room, Dining
room, single family house with a two car garage attached and a
screened below ground pool.
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<PAGE>
1110 SE 9th Court,
Cape Coral, FL 33393:- a Duplex containing two 2 Bedroom, 2 bathroom
living units ( 2 units)
1009 SE 9th Avenue;
Cape Coral, FL 33393:- a Duplex containing two 2 Bedroom, 2 bathroom
living units. (2 Units)
5247-5249 24th Avenue SW,
Golden Gate, FL 34116: a Duplex containing two 2 Bedroom, 2 bathroom
Living Units. (2 units)
ITEM 3: LEGAL PROCEEDINGS
The company is not presently a party to litigation of any kind or nature
whatsoever, nor to the Company's best knowledge and belief is any litigation
threatened or contemplated.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On December 30, 1998 the annual meeting of stockholders and Directors was
held at the Company's principal Offices at 1051-5th Avenue North, Naples,
Florida 34102. The purpose of the meeting was to re-elect the officers and
directors of the Company. Of the 4,655,310 shares outstanding 3,664,932
shares were represented by proxy and in person. Officers and Directors
present at the meeting were Garfield Ricketts, Chairman, Una M Ricketts
Secretary/ Treasurer and Vice President Karen Ricketts participated on
the telephone. The meeting was called to order by the Chairman at 10:47 AM.
and the following officers and directors were unanimously re-elected.
Garfield Ricketts-Chairman/Chief Operating Officer and Director.
Una M. Ricketts- Secretary/Treasurer and Chief Financial Officer
Karen M. Ricketts Vice President and Director
There were no settlements that terminated any solicitation under Rule 14a-11
PART 11
ITEM 1: MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
(A) Marketing information: The Company's Common Stock has
been registered with the Securities and Exchange Commission under Section
12(g) of the Exchange Act. There is no established public trading market for
the Company's issued and outstanding common stock. In the near future the
Company intends to seek sponsorship of one or more NASD Member Registered
Securities Dealers and a quotation on the National Association of Securities
Dealers NASDAQ quotation system at the Over The Counter Bulletin Board Level.
(B) Holders: The number of record holders of shares of the Company's
Common stock as of December 31, 1998 was 1316, inclusive of those brokerage
firms and/or clearing houses, if any holding shares of the Company's Common
stock for their clientele (with such brokerage house and/or clearing house,
if any, being considered as one holder). The agregate number of shares of the
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<PAGE>
Company's common stock issued and outstanding as of December 31, 1998 was
4,655,310, of which 3,500,000 shares are deemed "restricted securities" as
defined by Rule 144 of the Securities Act of 1933, as amended. As to the
balance of outstanding shares of the Company's Common Stock, 1,155,310 shares
are considered to have been issued and outstanding for more than two years
and may be sold or otherwise transferred without restriction unless held by
an affiliate or controlling stockholder of the Company. Of these shares, the
Company is not aware of any held by affiliates, officers or Directors of the
Company or beneficial interests thereof. The Company has no holders of
Preferred Stock.
(C) Dividends: The Company has not paid or declared any dividends upon
its shares of common stock since its inception and by reason of its present
financial status and its contemplated financial requirements, does not
contemplate or anticipate paying any dividends upon its shares of common stock
in the foreseeable future.
REII Incorporated (Formerly BAP Acquisition Corp.) and Subsidiary
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Revenue Sources
The company generates revenue primarily from the rental of
residential property, representing approximately 65% of total revenues
and real estate management services, representing approximately 35% of
total revenues. The Company plans to increase revenues by acquiring
existing and/or developing new residential properties and commercial
real estate.
Financial Condition, Liquidity, and Contingent Liabilities
The Company's long-term debt to capital (long-term debt and
stockholders' equity) ratio at December 31, 1998 and 1997 was 85.6% and
49.9%, respectively. The increase is due to mortgage financing obtained
in 1998 in the amount of $544,000 to acquire five new rental properties,
as disclosed in PART IV Item 2.
The Company's source of working capital is net income from
rental operating activities and capital contributions from stockholders.
The Company has not borrowed any moneys from financial institutions for
working capital needs. All debts of the Company are first mortgages on
income producing properties.
Net cash provided by operating activities for 1998 was negative $8,011
compared to $16,300 and $17,788 in 1997 and 1996, respectively. The
negative cash flow for 1998 was primarily due to payment of current
liabilities accrued in 1997.
The company recently upgraded its computer system to be year
2000 compliant. The company has not been informed of any material risks
associated with its vendors regarding year 2000 compliance, however,
there is no guarantee that such risks do not exist and will not have an
adverse effect on operations. Management is continuing to assess any
impact that the transition to the year 2000 will have on operations.
-7-
<PAGE>
Due to the nature of the company's business, it is not anticipated that
any impact would be material, however the cost of a potential impact is
not determinable.
Management of the Company believes that there are no
commitments, uncertainties, or contingent liabilities that will have a
materially adverse effect on the consolidated financial position or
future results of operations of the Company.
Capital Expenditures and Financing Requirements
The Company purchased five (5) residential rental properties
from Garfield Ricketts, a 60% stockholder, for $544,000 on December 18,
1998. The purchase price was based on the total of the properties'
market values established by an independent appraiser. The acquisition
was financed with bank mortgages in the amount of $359,100 and mortgages
to Garfield Ricketts in the amount of $184,900. There were no real
property acquisitions or investments thereof during 1997 or 1996.
Capital improvements to revenue producing assets (rental properties)
during 1998 totaled $8,073, compared to $-0- in both 1997 and 1996.
Capital expenditures for office equipment additions during 1998 totaled
$2,430, compared to $4,204 and $1,046 in 1997 and 1996, respectively.
The Company has an agreement represented by a Letter of Intent
to purchase 20 residential rental properties and one commercial office
property from Garfield Ricketts, a majority stockholder. Purchase price
upon acquisition will be the properties' market value, based on
independent appraisals. Market value of the 21 properties is currently
approximately $2 million, based on Multiple Listing Service's market
analysis, which tracks sales prices of comparable properties within the
area. Terms of the agreement require the Company to assume, refinance,
or pay off the balance due on the first mortgages on the properties of
approximately $1,040,000 as of December 31, 1998, and pay the balance of
the market value to Garfield Ricketts in cash or other form of payment
acceptable to him. All properties to be acquired will be subject to an
updated independent property appraisal.
The Company will require funds to acquire additional income producing
properties and/or real estate related entities and also to register its
securities with the National Association of Securities Dealers. The
Company will seek to borrow funds from financial institutions or raise
money through the offering of its common stock. Management believes
that the Company can continue to operate and meet its obligations via
working capital from operating and financing activities. Management is
of the opinion that inflation has not and will not have a material
effect on the operations of the Company.
Results of Operations
The following table sets forth for the periods indicated, the
percentages which selected items in the Company's Statements of
Operations bear to total revenues:
-8-
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<TABLE>
<CAPTION>
Year
Ended December 31
1998 1997 1996
<S> --------- --------- -----------
Revenues: <C> <C> <C>
Rental Income 61.1% 69.5% 63.5%
Management Services 25.1% 30.2% 27.9%
Commissions 13.6% --- 8.0%
Interest and Other .2% .3% .6%
---------- ----------- -----------
Total Revenues 100.0% 100.0% 100.0%
Expenses:
Direct Expenses:
Depreciation and Amortization 19.6% 21.5% 19.0%
Interest 16.6% 17.9% 17.1%
Real Estate Taxes 10.4% 11.1% 9.8%
Repairs & Maintenance 12.0% 11.5% 6.9%
Utilities 4.7% 5.9% 4.3%
Insurance 5.2% 7.2% 4.1%
Other Direct Expenses 3.3% 1.0% 4.0%
--------- -------- ----------
Total Direct Expenses 71.8% 76.2% 65.2%
General and Administrative Expenses:
Office Occupancy Expense 11.2% 11.5% 11.6%
Office Supplies & Expense 4.1% 4.3% 5.0%
Professional Fees 15.8% 11.1% 2.1%
Telephone 3.9% 5.0% 4.2%
Dues & Subscriptions 3.4% 5.2% 3.9%
Licenses, Dues, and Fees 4.1% 2.4% 1.9%
Other Administrative Expenses 2.9% 2.7% 2.2%
------------ ----------- -----------
Total General & Administrative
Expenses 45.4% 42.2% 30.9%
Total Expenses 115.9% 118.4% 96.1%
------------ ------------ -----------
Income (Loss) Before Taxes (17.2)% (18.4)% 3.9%
Provision for Income Taxes --- --- 1.4%
------------ ----------- ------------
Net Income (Loss) (17.2)% (18.4)% 2.5%
Year Ended December 31, 1998 Compared With Year Ended December 31, 1997
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<PAGE>
Net Income (Loss)
The Company reported a net loss of $15,912 in 1998 compared to a
net loss of $15,078 in 1997. Although revenues increased by $10,511
(12.8%) since the prior year, there was a corresponding $11,345 increase
(11.7%) in expenses, which resulted in very little change in net loss
for the years.
Revenues
Total revenues for 1998 increased by $10,511 (12.8%) to $92,633 from
$82,122 for 1997. The increase is attributable to the receipt of
commission revenues in 1998 that the Company did not obtain in 1997.
The Company re-instituted the services of a real estate broker in 1998
as a method to generate revenues.
Direct Expenses
Direct expenses for 1998 increased by $3,970 (6.3%) to $66,512 (71.8% of
total revenues) from $62,542 (76.2% of total revenues) for 1997. The
increase is due primarily to increased advertising costs from placing
ads for the sale of new homes and interior maintenance of the rental
properties during 1998. The decrease in direct expenses as a percentage
of total revenues is due to the increase in commission revenues in 1998,
from the sale of new homes.
General and Administrative Expenses
General and administrative expenses for 1998 increased by $7,375 (21.3%)
to $42,033 (45.4% of total revenues) from $34,658 (42.2% of total
revenues) for 1997. The increase is due primarily to the increased
legal, consulting, and accounting fees that the Company incurred to
prepare to register with the National Association of Securities Dealers.
Income Taxes
There was no provision for Federal Income Tax for 1998 or 1997 because
the Company was operating at a loss during both years.
Year Ended December 31, 1997 Compared With Year Ended December 31, 1996
Net Income (Loss)
The Company reported a net loss of $15,078 in 1997 compared to
net income of $2,314 in 1996. The reason for the loss in 1997 is
twofold. First, the Company no longer received commission revenues from
an outside broker, thereby reducing total revenues. Second, general and
administrative expenses increased due to the accounting costs of meeting
reporting obligations under the Securities Exchange Act.
Revenues
Total revenues for 1997 decreased by $10,711 (11.5%) to $82,122 from
$92,833 for 1996. The decrease is due to the fact that the Company no
longer received commission revenues from an outside real estate broker.
Direct Expenses
Direct expenses for 1997 increased by $1,994 (3.3%) to $62,542 (76.1% of
total revenues) from $60,548 (65.2% of total revenues) for 1996. The
increase is due primarily to interior maintenance of the rental
properties performed during 1997.
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<PAGE>
General and Administrative Expenses
General and administrative expenses for 1997 increased by $5,994 (20.9%)
to $34,658 (42.2% of total revenues) from $28,664 (30.9% of total
revenues) for 1996. The increase is due primarily to the accounting
fees that the Company incurred to meet its reporting obligations under
the Securities Exchange Act.
Income Taxes
There was no provision for Federal Income Tax for 1997 because the
Company was operating at a loss. The provision for income taxes for
1996 is based on an effective tax rate of 15%.
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<PAGE>
FINANCIAL REPORTS
AT
DECEMBER 31, 1998 AND 1997
REII INCORPORATED
(FORMERLY BAP ACQUISITION CORP.)
AND SUBSIDIARY
(A DELAWARE CORPORATION)
NAPLES, FLORIDA
INDEPENDENT AUDITOR'S REPORTS
To the Board of Directors
and Stockholders
REII Incorporated
(Formerly BAP Acquisition Corp.)
and Subsidiary
(A Delaware Corporation)
Naples, Florida
We have audited the accompanying consolidated balance sheets of
REII Incorporated and Subsidiary as of December 31, 1998 and 1997, and
the related consolidated statements of changes in stockholders' equity,
operations and cash flows for each of the three years in the period
ended December 31, 1998. 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 audits 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 consolidated financial statements referred
to above present fairly, in all material respects, the consolidated
financial position of REII Incorporated and Subsidiary as of December
31, 1998 and 1997 and the consolidated results of their operations and
their cash flows for each of the three years in the period ended
December 31, 1998, in conformity with generally accepted accounting
principles.
Rotenberg and Company LLP
Rochester, New York
February 24, 1999
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<PAGE>
REII INCORPORATED
(FORMERLY BAP ACQUISITION CORP.)
AND SUBSIDIARY
(A Delaware Corporation)
Naples, Florida
CONSOLIDATED BALANCE SHEETS AT
DECEMBER 31, 1998 AND 1997
</TABLE>
<TABLE>
<CAPTION>
ASSETS
1998 1997
<S> ________ ________
Assets <C> <C>
Revenue Producing Assets -
Net of Accumulated Depreciation $ 772,933 $ 229,670
Land Held for Investment 24,000 24,000
Cash and Cash Equivalents 4,993 13,486
Rents Receivable --- 1,546
Other Current Assets 5,353 1,422
Tenant Escrow Account 32,033 27,389
Office Property and Equipment -
Net of Accumulated Depreciation 7,715 6,862
Organization Costs -
Net of Accumulated Amortization 17,867 27,189
________ ________
Total Assets $ 864,894 $ 331,564
________ ________
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Mortgages Payable - Banks $ 495,528 $ 141,133
Mortgages Payable - Stockholder 184,900 ---
Accounts Payable and Accrued Expenses 5,712 15,135
Tenant Escrow Liability 32,033 27,389
Due to Stockholder 31,749 17,023
________ ________
Total Liabilities $ 749,922 $ 200,680
________ ________
Stockholders' Equity
Common Stock: $.001 Par;
20,000,000 Shares Authorized,
4,655,310 Shares Issued and Outstanding 4,655 4,655
Additional Paid-In Capital 336,381 336,381
Deficit (226,064) (210,152)
________ ________
Total Stockholders' Equity $ 114,972 $ 130,884
________ ________
Total Liabilities and Stockholders' Equity $ 864,894 $ 331,564
________ ________
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<PAGE>
REII INCORPORATED
(FORMERLY BAP ACQUISITION CORP.)
AND SUBSIDIARY
(A Delaware Corporation)
Naples, Florida
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY FOR
THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
</TABLE>
<TABLE>
<CAPTION>
Common
Stock Additional Total
$.001 Par Paid-In Stockholders'
Shares Value Capital Deficit Equity ________ ________ ________ ________
-------- --------- --------- -------- ----------
<S> <C> <C> <C> <C> <C>
Balance January 1,1996 4,655,310 $ 4,655 $ 336,381 $(197,388) $ 143,648
Net Income - 1996 --- --- --- 2,314 2,314
________ ______ ________ ________ ________
Balance December 31,1996 4,655,310 $ 4,655 $ 336,381 $(195,074) $145,962
Net Loss - 1997 --- --- --- (15,078) (15,078)
________ ______ ________ ________ ________
Balance December 31,1997 4,655,310 $ 4,655 $ 336,381 $(210,152) $130,884
Net Loss - 1998 --- --- --- (15,912) (15,912)
________ ______ ________ ________ _______
Balance December 31,1998 4,655,310 $ 4,655 $ 336,381 $(226,064) $114,972
________ _______ ________ ________ ________
-14-
<PAGE>
REII INCORPORATED
(FORMERLY BAP ACQUISITION CORP.)
AND SUBSIDIARY
(A Delaware Corporation)
Naples, Florida
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
</TABLE>
<TABLE>
<CAPTION>
1998 1997 1996
<S> _______ _______ _______
Revenues <C> <C> <C>
Commissions $ 12,665 $ --- $ 7,450
Management Services 23,213 24,810 25,860
Rental Income 56,565 57,072 58,946
Interest and Other 190 240 577
_______ ________ _________
Total Revenues $ 92,633 $ 82,122 $ 92,833
_______ ________ _________
Direct Expenses
Advertising $ 1,968 $ 126 $ 392
Management Fees 1,126 693 3,351
Depreciation and Amortization 18,132 17,656 17,653
Insurance 4,844 5,890 3,795
Interest 15,341 14,727 15,885
Real Estate Taxes 9,630 9,156 9,063
Repairs and Maintenance 11,076 9,456 6,375
Utilities 4,395 4,838 4,034
_______ _______ _______
Total Direct Expenses $ 66,512 $ 62,542 $ 60,548
_______ _______ _______
General and Administrative Expenses
Contributions $ 300 $ 260 $ 246
Depreciation 1,577 970 509
Dues and Subscriptions 3,114 4,271 3,644
Licenses, Dues and Fees 3,800 1,938 1,747
Occupancy Expenses 10,384 9,455 10,743
Office Supplies and Expense 3,812 3,534 4,645
Professional Fees 14,628 9,137 1,989
Telephone 3,592 4,099 3,823
Travel and Entertainment 826 994 1,318
_______ _______ _______
Total General and
Administrative Expenses $ 42,033 $ 34,658 $ 28,664
_______ _______ _______
Income (Loss)
Before Provision for Taxes $(15,912) $(15,078) $ 3,621
Provision for Taxes --- --- 1,307
_______ _______ _______
Net Income (Loss) $(15,912) $(15,078) $ 2,314
_______ _______ _______
-15-
<PAGE>
</TABLE>
<TABLE>
Consolidated Statement of Operations Continued
<CAPTION>
1998 1997 1996
________ ________ ________
<S> <C> <C> <C>
Income (Loss) per
Common Share: $ (.003) $ (.003) $ ---
________ ________ ________
Weighted Average
Number of Common 4,655,310 4,655,310 4,655,310
Shares Outstanding ________ ________ ________
-16-
<PAGE>
REII INCORPORATED
(FORMERLY BAP ACQUISITION CORP.)
AND SUBSIDIARY
(A Delaware Corporation)
Naples, Florida
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
</TABLE>
<TABLE>
<CAPTION>
1998 1997 1996
_______ _______ _______
<S> C> <C> <C>
Cash Flows from Operating Activities
Net Income (Loss) $(15,912) $(15,078) $ 2,314
Adjustments to Reconcile
Net Income (Loss) to Net Cash
Flows from Operating Activities:
Amortization 9,322 9,322 9,322
Depreciation 10,387 9,304 8,840
Bad Debts --- --- ---
Changes in Assets and Liabilities:
Rents Receivable 1,546 (166) 3,016
Other Current Assets (3,931) (910) (512)
Accounts Payable and-
Accrued Expenses (9,423) 13,828 (5,192)
_______ _______ _______
Net Cash Flows from
Operating Activities $ (8,011) $ 16,300 $ 17,788
_______ _______ _______
Cash Flows from Investing Activities
Acquisition of Office Equipment $(10,503) $ (4,204) $ (1,046)
_______ _______ _______
Net Cash Flows from
Investing Activities $(10,503) $ (4,204) $ (1,046)
_______ _______ _______
Cash Flows from Financing Activities
Repayment of Mortgages $ (4,705) $ (4,265) $ (3,869)
Change in Due to Stockholder 14,726 (5,532) (1,686)
_______ _______ _______
Net Cash Flows from
Financing Activities $ 10,021 $ (9,797) $ (5,555)
_______ _______ _______
Net Increase (Decrease) in-
Cash and Cash Equivalents $ (8,493) $ 2,299 $ 11,187
Cash and Cash Equivalents -
Beginning of Year 13,486 11,187 ---
_______ _______ _______
Cash and Cash Equivalents -
End of Year $ 4,993 $ 13,486 $ 11,187
_______ _______ _______
-17-
<PAGE>
Consolidated Statement of Cash Flows Continued
</TABLE>
<TABLE>
<CAPTION>
1998 1997 1996
_______ _______ _______
<S> <C> <C> <C>
Supplementary Disclosures
Interest Paid $ 15,341 $ 14,727 $ 15,885
Income Taxes Paid --- 1,055 ---
NON-CASH INVESTING AND FINANCING ACTIVITIES
Acquisition of Revenue Producing Assets
Via Mortgage Financing on December 18, 1998 $544,000 $ --- $ ---
REII INCORPORATED
(FORMERLY BAP ACQUISITION CORP.)
AND SUBSIDIARY
(A DELAWARE CORPORATION)
Naples, Florida
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note A - Nature of Operations and Summary of Significant
Accounting Policies
The Corporation, formerly known as BAP Acquisition Corp.,
changed its name to REII Incorporated, effective April 15, 1998. The
business was incorporated on August 24, 1994 under the laws of the state
of Delaware. The principal business activity is carried on through the
wholly-owned subsidiary, Ricketts Enterprises International, Inc. (REI),
a Florida Corporation. REI is a duly licensed real estate corporation
in the state of Florida and is presently active in the ownership,
management, and sale of residential real estate in the states of
Florida, and Texas.
Segment Data, Geographic Information, and Significant Customers
The Corporation operates in one industry segment and receives
rental revenues from third party tenants located in Florida and Texas.
Approximately 65% of revenues are from rental operations, 35% from
commissions and management fees, and less than 1% from interest and
other income.
Method of Accounting
The Corporation maintains its books and prepares its financial
statements on the accrual basis of accounting.
-18-
<PAGE>
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 expense during the reporting period. Actual results can differ from
those estimates.
Concentrations of Credit Risk
Financial instruments which potentially expose the Corporation
to significant concentrations of credit risk consist principally of bank
deposits and rents receivable. Cash is placed primarily in high quality
short term interest bearing financial instruments. The Corporation
performs evaluations of its clients' financial condition and timely
collection procedures on rents receivable.
Fair Value of Financial Instruments
The carrying amounts of financial instruments including cash
and cash equivalents, accounts receivable, and accounts payable
approximated fair value as of December 31, 1998 and 1997 because of the
relatively short maturity of these instruments. The carrying value of
long-term debt, including the current portion, approximated fair value
as of December 31, 1998 and 1997 based upon current market rates for the
same or similar debt issues.
Cash and Cash Equivalents
Cash and cash equivalents include time deposits, certificates
of deposit, and all highly liquid debt instruments with original
maturities of three months or less. The company maintains cash and cash
equivalents at financial institutions which periodically may exceed
federally insured amounts.
Rents Receivable
The Corporation performs evaluations of its clients' financial
conditions and collectibility of rents receivable. No allowance for
uncollectible accounts has been provided, as management believes that
all accounts are collectible.
Note A - Nature of Operations and Summary of Significant
Accounting Policies - continued
Revenue Producing Assets and Depreciation
Revenue Producing Assets consist of land and buildings which
are stated at cost, less the buildings' accumulated depreciation
computed on the straight line method over the estimated useful lives of
28 years.
Renewals and improvements are charged to property accounts.
Costs of maintenance and repairs that do not improve or extend asset
lives are charged to expense. The cost of property retired or otherwise
disposed of and the related accumulated depreciation are removed from
the accounts.
-19-
<PAGE>
Long-Lived Assets
The Revenue Producing Assets are considered long-lived assets
and are reviewed for impairment in accordance with SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of," whenever events or changes in circumstances
indicate that the related carrying amount may not be recoverable. In
performing the review for recoverability, the Corporation estimates the
future cash flows expected to result from the use of the assets and
their eventual disposition in determining their fair value. When
required, impairment losses on assets to be held and used are recognized
based on the difference between the fair value and the carrying amount
of the assets. Long-lived assets to be disposed of are reported at the
lower of carrying amount or fair value less cost to sell.
Office Property, Equipment and Depreciation
Office property and equipment are stated at cost, less
accumulated depreciation computed using the straight line method over
the estimated useful lives as follows:
Office Equipment 5 - 10 Years
Office Furniture 7 - 15 Years
Maintenance and repairs are charged to expense. The cost of
the assets retired or otherwise disposed of and the related accumulated
depreciation are removed from the accounts.
Organization Costs and Amortization
Organization costs have been capitalized and are being
amortized over a life of five years.
Revenue Recognition
Revenues from commissions and management services are
recognized as services are rendered. Revenues from rental properties
are recognized monthly based on agreed upon payments in month-to-month
or one year term lease agreements.
Net Income Per Common Share
Net income (loss) per common share is computed in accordance
with SFAS No. 128, "Earnings Per Share," by dividing income available to
common stockholders by the weighted average of number of common shares
outstanding for each period.
Income Taxes
The Corporation accounts for income taxes in accordance with
SFAS No. 109, "Accounting for Income Taxes," using the asset and
liability approach, which requires recognition of deferred tax
liabilities and assets for the expected future tax consequences of
temporary differences between the carrying amounts and the tax basis of
such assets and liabilities. This method utilizes enacted statutory tax
rates in effect for the year in which the temporary differences are
expected to reverse and gives immediate effect to changes in income tax
rates upon enactment. Deferred tax assets are recognized, net of any
valuation allowance, for temporary differences and net operating loss
and tax credit carryforwards. Deferred income tax expense represents
the change in net deferred assets and liability balances. The
Corporation had no material deferred tax assets or liabilities for the
periods presented.
- - continued -
-20-
<PAGE>
Note A - Nature of Operations and Summary of Significant
Accounting Policies - continued
Reclassifications
Certain amounts in the prior year financial statements have
been reclassified to conform with the current year presentation.
Note B - Land Held for Investment
The Corporation owns three building lots zoned for duplexes on
which it plans to build rental properties as soon as construction and
permanent financing can be arranged. The land is recorded at cost on
the balance sheet of $24,000.
Note C - Revenue Producing Assets
Revenue Producing Assets consisted of the following at
December 31, 1998 and 1997:
</TABLE>
<TABLE>
<CAPTION>
1998 1997
<S> ________ _________
<C> <C>
Land $ 101,620 $ 33,670
Apartment Buildings 709,365 233,315
Building Improvements 8,073 ---
________ ________
$ 819,058 $ 266,985
Less: Accumulated Depreciation 46,125 37,315
________ ________
Net Revenue Producing Assets $ 772,933 $ 229,670
________ ________
Depreciation expense for the years ended December 31, 1998,
1997, and 1996 was $8,810, $8,334, and $8,331, respectively.
Note D - Office Property and Equipment
Office property and equipment are recorded at cost and
consisted of the following at December 31, 1998 and 1997:
</TABLE>
<TABLE>
<CAPTION>
<S>
1998 1997
________ ________
<C> <C>
Office Equipment $ 10,489 $ 8,059
Office Furniture 7,643 7,643
________ ________
$ 18,132 $15,702
Less: Accumulated Depreciation 10,417 8,840
________ ________
Net Property and Equipment $ 7,715 $ 6,862
________ ________
-21-
<PAGE>
Depreciation expense for the years ended December 31, 1998,
1997, and 1996 was $1,577, $970, and $509, respectively.
Note E - Organization Costs
Organization costs are being amortized over 5 years and
consisted of the following at December 31, 1998 and 1997:
</TABLE>
<TABLE>
<CAPTION>
1998 1997
<S> _______ ________
<C> <C>
Legal Fees $ 40,000 $ 40,000
Property Transfer Fees 6,702 6,702
_______ _______
$ 46,702 $ 46,702
Less: Accumulated Amortization 28,835 19,513
_______ _______
Net Organization Costs $ 17,867 $ 27,189
_______ _______
Amortization expense for each of the years ended December 31,
1998, 1997, and 1996 was $9,322.
Note F - Mortgages Payable
Mortgages payable to banks consisted of the following at
December 31, 1998 and 1997:
</TABLE>
<TABLE>
<CAPTION>
<S>
1998 1997
_______ _______
Midland Mortgage Company <C> <C>
Mortgage on property located at 4603 Orchard Lane
in Naples, Florida, due December 2020, payable in
monthly payments of $307including principal and
interest at 10.00%. $ 23,904 $ 25,134
Lloyd G. Sheehan
Mortgage on property located at 5326 Jennings Street
in Naples, Florida, due December 2025, payable in
monthly payments of $353 including principal and
interest at 10.00%. 37,342 37,817
Mortgage on property located at 5330 Jennings Street
in Naples, Florida, due December 2020, payable in
monthly payments of $241 including principal and
interest at 8.75%. 18,788 19,976
Fleet Mortgage Group
Mortgage on property located at 5238-40 Hardee Street
in Naples, Florida, due December 2020, payable in
monthly payments of $256 including principal and
interest at 9.50%. 20,192 21,285
-continued-
-22-
<PAGE>
Note F- Mrtgages Payable continued
1998 1997
--------- ---------
Chase Manhattan Mortgage Corporation
Mortgage on property located at 5450 Hardee Street
in Naples, Florida, due December 2020, payable in
monthly payments of $426 including principal and
interest at 12.00%. 36,202 36,921
Washington Mutual Bank
Mortgage due on property located at 5247-49 24th
Avenue SW in Naples, Florida, due January 2029,
payable in monthly payments of $440 including
principal and interest at the bank's index plus 2.50%
(effective rate of 5.55% at December 31, 1998). $ 77,000 $ ---
Mortgage due on property located at 1110 SE 9th
Court in Cape Coral, Florida, due January 2029,
payable in monthly payments of $312 including
principal and interest at the bank's index plus 2.50%
(effective rate of 5.55% at December 31, 1998). 54,600 ---
Mortgage due on property located at 1009 SE 9th
Avenue in Cape Coral Florida, due January 2029,
payable in monthly payments of$336 including
principal and interest at the bank's index plus 2.50%
(effective rate of 5.55% at December 31 ,1998). 58,800 ---
Mortgage due on property located at 205 SW 33rd
Street in Cape Coral, Florida, due January 2029,
payable in monthly payments of $362 including
principal and interest at the bank's index plus 2.45%
(effective rate of 5.50% at December 31, 1998). 63,700 ---
Mortgage due on property located at 222 Willoughby
Drive in Naples, Florida, due January 2029,
payable in payments of $596 including principal
and interest at the bank's index plus 2.45%
(effective rate of 5.50% at December 31, 1998). 105,000 ---
________ ________
Total Mortgages Payable - Banks $ 495,528 $ 141,133
Mortgages payable to stockholder consisted of the following at
December 31, 1998 and 1997:
Garfield Ricketts
Mortgage due on property located at 5247-49 24th
Avenue SW in Naples, Florida, payable in monthly
payments of $253 including principal and interest
at 7%. Balloon payment is due January 2004. 38,000 ---
Mortgage due on property located at 1110 SE 9th
Court in Cape Coral, Florida, payable in monthly
payments of $229 including principal and interest
at 7%. Balloon payment is due January 2004. 34,400 ---
-23-
-continued-
<PAGE>
Note F- Mortgages Payable-continued
1998 1997
----------- -----------
Mortgage due on property located at 1009 SE 9th
Avenue in Cape Coral, Florida, payable in monthly
payments of $201 including principal and interest
at 7%. Balloon payment is due January 2004. 30,200 ---
Garfield Ricketts
Mortgage due on property located at 205 SW 33rd
Street in Cape Coral, Florida, payable in monthly
payments of $208 including principal and interest
at 7%. Balloon payment is due January 2004. $ 31,300 $ ---
Mortgage due on property located at 222 Willoughby
Drive in Naples, Florida, payable in monthly
payments of $339 including principal and interest
at 7%. Balloon payment is due January 2004. 51,000 ---
________ ________
Total Mortgages Payable - Stockholder $184,900 $ ---
________ ________
Total Mortgages Payable - Banks and Stockholder $680,428 $141,133
________ ________
Aggregate annual maturities of mortgages as of December 31,
1998 are as follows:
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1999 $11,311
2000 12,794
2001 13,820
2002 14,934
2003 16,146
2004 and Thereafter 611,423
________
Total $ 680,428
________
Interest expense for the years ended December 31, 1998, 1997,
and 1996 was $15,341, $14,727, and $15,885, respectively.
Note G - Related Party Transactions
The Corporation rents the office building for its corporate
headquarters located in Naples, Florida for $575 per month, based on a
month-to-month agreement from Garfield Ricketts, a 60% stockholder.
Rent expense in the amount of $6,900 for each of the years ended
December 31, 1998, 1997 and 1996 is included in occupancy expenses.
- -continued-
-24-
<PAGE>
Note G- continued
The Corporation provides real estate management services for
Garfield Ricketts, a 60% stockholder, which include the collection of
rents for his personal rental properties and the disbursement of related
expenses. The Corporation receives 10% of the gross rents collected for
this service. Amounts received in 1998, 1997 and 1996 were $18,032,
$19,940, and $18,980, respectively. Due to Stockholder represents
amounts owed to Garfield Ricketts for collection of rents on his
personal properties.
Note H - Income Taxes
The Corporation has $29,790 of net operating loss
carryforwards for federal tax purposes as of December 31, 1998, which
are available to offset future taxable income and expire during the
years 2012 through 2018.
Note I - Other Matters
REI entered into an agreement represented by a Letter of
Intent dated January 15, 1996 to acquire and operate residential rental
properties and one commercial office property owned by Garfield
Ricketts, a 60% stockholder. On December 18, 1998, REI acquired five of
the residential rental properties at a cost equal to the market values
established by an independent appraiser, totaling $544,000. The
acquisition was financed with bank mortgages in the amount of $359,100
and mortgages to Garfield Ricketts in the amount of $184,900. Financial
data of the five properties consisted of the following for the years
ended December 31, 1998, 1997, and 1996:
</TABLE>
<TABLE>
<CAPTION>
1998 1997 1996
________ ________ ________
<S> <C> <C> <C>
Rental Income $ 54,212 $ 51,620 $ 48,569
Comparable Expenses 31,133 30,633 31,165
________ ________ ________
Subtotal $ 23,079 $ 20,987 $ 17,404
Non-Comparable Expenses 33,522 37,034 39,939
________ ________ ________
Net Loss $(10,443) $(16,047) $(22,535)
________ ________ ________
There are approximately 20 residential rental properties and
one commercial office property left to be acquired by REI from Garfield
Ricketts. The properties are valued at approximately $2 million, based
on Multiple Listing Service's market analysis which tracks sales prices
of comparable properties within the area. Acquisition of the remaining
properties will be completed when permanent financing can be arranged.
Financial data of the 21 properties consisted of the following for the
years ended December 31, 1998, 1997, and 1996:
-25-
<PAGE>
</TABLE>
<TABLE>
<CAPTION>
1998 1997 1996
________ ________ ________
<S> <C> <C> <C>
Rental Income $ 217,826 $ 221,755 $ 218,363
Comparable Expenses 99,235 89,355 87,313
________ ________ ________
Subtotal $ 118,591 $ 132,400 $ 131,050
Non-Comparable Expenses 128,335 123,988 129,626
________ ________ ________
Net Income (Loss) $ (9,744) $ 8,412 $ 1,424
________ ________ ________
Non-comparable expenses include mortgage interest,
depreciation, corporate expenses, and income taxes. Management believes
that future estimated taxable operating results of the properties will
approximate the results as shown above. Results could differ based on
the financing structure used to acquire the properties. The Corporation
is not aware of any material factors relating to the properties that
could cause the above financial information not to be indicative of
future operating results. The Corporation does not intend to pay cash
distributions from any positive cash flow that may be generated from the
properties.
Note J - Year 2000
REII recently upgraded its computer system to be year 2000
compliant. The Corporation has not been informed of any material risks
associated with its vendors regarding year 2000 compliance, however,
there is no guarantee that such risks do not exist and will not have an
adverse effect on operations. Management is continuing to assess any
impact that the transition to the year 2000 will have on operations.
Due to the nature of the corporation's business, it is not anticipated
that any impact would be material, however the cost of a potential
impact is not determinable.
ITEM 4: CHANGES IN DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURES
From the inception of the Company its accountants have deen Rotenberg &
Company, LLP of RochesterNew York. At no time have there been any
disagreements with current accountants, regarding any matter of accounting
principles or practices, financial disclosures, or auditing scope or
procedure.
-26-
<PAGE>
PART 111
ITEM 1: DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
The Directors and Executive Officers of the Company and their ages are
as follows.
NAME AGE POSITION
------ ---- --------
Garfield H. Ricketts 70 President/CEO/Director
Karen Ricketts 38 Vice President/Director
Una M. Ricketts 66 Secretary/Treasurer/Director
All Company Directors were re-elected unanimously by a majority
of the shareholders represented in person and by proxy in the Company's
annual meeting held at the Company's Principal place of business on
December 30, 1998. at 10:47 AM, and will remain in office until the next
annual meeting of the stockholders, and until their successors have been
duly elected and qualified.
There are no agreements with respect to the election of Directors. The
Company has not compensated its Directors for service on the Board of
Directors and/or any committee thereof or reimbursed for expenses incurred
for attendance at meetings of the Board of Directors. Officers are appointed
annually by the Board of Directors and each executive officer serves at the
discretion of the Board of Directors, The Company does not have any
standing committees.
None of the Officers and/or Directors of the Company are Officers or
Directors of any other publicly traded corporation, nor have any of the
Officers, Directors, Affiliates or Promoters of the Company filed any
bankruptcy petition, been convicted of or have been the subject of any
criminal proceedings, or the subject of any order, judgment, or decree
involving the violation of any state or federal securities laws within
the past five years.
At present all the Officers and Directors of the Company serve without
compensation in their capacity as Officers and/or Directors.
All authorized out of pocket expenses incurred by an Officer or Director
on behalf of the Company is subject to reimbursement upon receipt by the
Company of the required documentation substantiating such expense.
Compensation of Officers and Directors of the Company is at the discretion
of the Board of Directors, circumstances may change in the future at which
time the Officers and Directors of the Comapny may receive compensation.
-27-
<PAGE>
The business experience of each of the persons listed above during the
past five years is is follows:
Garfield H. Ricketts was Educated in Jamaica, West Indies at Excelsior
College, and Kingston Technical School, and studied further at the
Thomas Edison State College of New Jersey, has been president, Chief
Executive Officer and a Director of REI since February 1993 at which time
he founded REI, He is Licensed by the Federal Cummunications Commission as a
Broadcast Engineer since March 1958 and was employed in Radio and television
Broadcasting From 1958 to 1966.
He joined the National Broadcasting Co.Inc.(NBC),in March 1966 as an
engineer and was promoted to Field Technical Supervisor, in 1976, a
Managerial Position, then to Manager of Electronic Journalism in 1979.
Later he was promoted to Manager of Field Operations and to many other
positions until retirement in January, 1989. Mr. Ricketts began building
and managing a portfolio of Real property since 1983.
He has been Licensed as a Real Estate Broker in the State of New York
since 1989, and the State Of Florida since 1997, and even though now living
in Florida continues to maintain the New York License.
Una M. Ricketts was Educated in Jamaica West Indies in all phases of
Business (Accounting) and has been employed as bookkeeper for the past 43
years, rising to the position of Chief Accountant with Merchant's Importing
Company of New York. Mrs Ricketts retired in July of 1993. She has been
the Chief Accountant for Ricketts Enterprises International Inc., since
its inception in February 1993.
Karen Ricketts obtained her Bachelor of Arts Degree in Communications
from the State University of New York, Buffalo in 1982. In 1989 she
completed an Associate Degree from Adelphi University and is a certified
Paralegal. After graduation in 1989 as a Paralegal, Ms. Ricketts joined
the law firm of Levey Phillips & Koningsberg, New York, New York, as a
Legal Assistant. She has recently joined the firm of Salon, Marrow & Dyckman
of New York, NY as a legal assistant.
ITEM 2 EXECUTIVE COMPENSATION
At present the Company does not maintain any form of bonus, profit sharing,
or deferred compensation plan for the benefit of any Employees, Officers or
Directors. The Board of Directors is currently considering a package of
benefits and may present a plan at the Company's next annual meeting.
There are no employment contracts with any individual working for or
associated with the Company or its subsidiary.
-28-
<PAGE>
</TABLE>
<TABLE>
<CAPTION>
<S>
Name and Annual Other Annual All Other
Principal Position Year Salary Bonus Compensation Compensation
------------------ ---- ------ ----- ------------ ------------
<C> <C> <C> <C> <C>
Garfield Ricketts 1995 0 0 0 0
President/CEO 1996 0 0 0 0
1997 0 0 0 0
1998 0 0 0 0
Una Ricketts 1995 0 0 0 0
Secretary/Treasurer 1996 0 0 0 0
1997 0 0 0 0
1998 0 0 0 0
Karen Ricketts 1995 0 0 0 0
V.P/Director 1996 0 0 0 0
1997 0 0 0 0
1998 0 0 0 0
In the future the Company may established with each Company Officer and/or
Director some form of compensation. Said compensation may include a
situation wherein an Officer and/or Director could receive shares of the
Company's Common Stock in lieu of cash until such time that the Company
can sustain such expenses. In the event shares of the Company's Common
Stock are delivered to an Officer and/or Director as compensation, the
value of the shares delivered will be based on one or more of the following
criteria: the then current market value of the shares as traded on a public
exchange, the then current Book Value of the shares, or as determined by the
Company's Board of Directors.
The dollar amount of compensation due each Officer and/or Director and
formula for valuing the shares of the Company's Common Stock in order to
determine the number of shares to be issued as compensation will be
determined by the Board of Directors prior to the issuance of any shares
of the Company's Common Stock. No dollar amount of Officer/Director
compensation or formula for determining the value of the shares of the
Company's Commons Stock have been determined at this time and the Board of
Directors has no plans to make such a determination in the near future.
-29-
<PAGE>
ITEM 3 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, information with respect to (1) any
person, management or otherwise, known by the Company to own beneficially
more than five percent (5%) of the Company's stock. (2) the shares of Common
stock beneficially owned by each Officer and Director of the Company, and (3)
the total of the Company's Common Stock beneficially owned by Company's
Officers and Directors as a group. Each stockholder holds the sole voting and
investment power with regard to the shares owned beneficially by such
stockholder.
</TABLE>
<TABLE>
<CAPTION>
<S>
Name and Address of Amount and Nature of Percent of
Beneficial owner Beneficial Ownership Class (1)
- -------------------- -------------------- ----------
<C> <C>
Garfield H Ricketts 2,800,000 (2) 60%
4010 Royal Wood Blvd.
Naples, FL 34112
Una M. Ricketts 700,000 (2) 15%
4010 Royal Wood Blvd.
Naples, FL 34112
Karen Ricketts 0 (3) 0
13 Terrace Circle,
Great Neck NY 11021
All Directors and Executive
Officers as a group (3 Persons) 3,500,000 75%
Notes: Unless otherwise indicated in the footnotes below, the Company
has been advised that each person above has sole voting power over the
shares indicated.
Note 1: Based upon the 4,655,310 shares of Common Stock issued and
outstanding on December 31, 1998, there are no outstanding options for the
purchase of shares of the Company's Stock.
Note 2: Garfield Ricketts and Una M Ricketts are related by marriage since
February 1952. Neither claims a beneficial interest in the other's shares of
Common Stock.
Note 3: Karen Ricketts is the daughter of Garfield and Una Ricketts.
ITEM 4 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During the Company's last three fiscal years, there have been no arrangements
between the Company and any of its current or previous Officers, Directors.
or nominees for election as a Director, or any shareholder owning greater
than five percent (5%) of the Company's outstanding shares, nor any member
of the above referenced individuals'immediate family except as set forth
herein.
-30-
<PAGE>
The Company has an agreement represented by a Letter of Intent
to purchase 20 residential rental properties and one commercial office
property from Garfield Ricketts, a majority stockholder. Purchase price
upon acquisition will be the properties' market value based on independent
appraisals. Market value of the 21 properties is currently approximately
$1.9 million, based 0n Multiple Listing Service's market analysis, which
tracks sales of comparable properties within the area. Terms of the agreement
require the Company to assume, refinance, or payoff the balance due on the
first mortgages on the prioperties of approximately $1,040,000 as of
December 31, 1998, and pay the balance at market value to Garfield Ricketts
in cash or other form of payment acceptable to him. All properties to be
acquired will be subject to an updated independent property appraisal.
The Company is currently contemplating undertaking a new offering of its
debt and/or equity in order to achieve its business objectives over the
next 12 months. Unless the Company is able to raise additional Capital from
borrowing (refinance of the existing properties being acquired) or the sale
of corporate debt and/or equity securities for which there is no assurance
the Company will its business objectives and may not proceed under the
current Letter of Intent.
The Company and its subsidiary REI currently occupies office facilities of
approximately 1000 square feet (an office Condominium) that is owned by
Mr. Garfield Ricketts, President of the Company. The Company pays $575 a
month rent. There is no written lease agreement between the Company or its
subsidiary REI and Mr. Ricketts. The Company is considered to be a month
to month tenant.
The Company currently does not have in force or effect any policies,
procedures or controls with respect to entering into future transactions
with its Officers, Directors, Affiliates or a Related Party.
PART IV
ITEM 1
EXHIBITS AND REPORTS ON FORM 8-k
There were no reports filed in the last quarter
Item 2. Acquisition of Assets
On December 18, 1998, REII (the "Company") acquired five (5) residential
rental properties from Garfield Ricketts, a 60% stockholder for
$544,000. The cost to acquire each property was based on the market
value established by an independent appraiser. The acquired properties
are included in the Company's balance sheet in revenue producing assets
as of December 31, 1998 and were recorded at cost. The acquisition was
financed with bank mortgages in the amount of $359,100 and mortgages to
Garfield Ricketts in the amount of $184,900. A description of the
properties and related financing arrangements follow.
-31-
<PAGE>
Property Description & Financing Arrangement Cost
----------
1) 5247-49 24th Avenue SW, Naples, Florida -
Duplex with two rentals $115,000
Mortgage with Washington Mutual Bank in
the amount of $77,000, payable in monthly
payments of $440 including principal and interest
at the bank's index plus 2.50% (effective rate
of 5.55% at December 31,1998). Due January 2029.
Mortgage with Garfield Ricketts, a 60%
shareholder, in the amount of $38,000, payable in
monthly payments of $253 including principal and
interest at 7%. Balloon payment is due January 2004.
2) 1110 SE 9th Court, Cape Coral, Florida -
Duplex with two rentals 89,000
Mortgage with Washington Mutual Bank in
the amount of $54,600, payable in monthly
payments of $312 including principal and interest
at the bank's index plus 2.50% (effective rate
of 5.55% at December 31,1998). Due January 2029.
Mortgage with Garfield Ricketts, a 60%
shareholder, in the amount of $34,400, payable in
monthly payments of $229 including principal and
interest at 7%. Balloon payment is due January 2004.
3) 1009 SE 9th Avenue, Cape Coral, Florida -
Duplex with two rentals 89,000
Mortgage with Washington Mutual Bank in
the amount of $58,800, payable in monthly
payments of $336 including principal and interest
at the bank's index plus 2.50% (effective rate
of 5.55% at December 31,1998). Due January 2029.
Mortgage with Garfield Ricketts, a 60%
shareholder, in the amount of $30,200, payable in
monthly payments of $201 including principal and
interest at 7%. Balloon payment is due January 2004.
4) 205 SW 33rd Street, Cape Coral, Florida -
House with one rental 95,000
Mortgage with Washington Mutual Bank in
the amount of $63,700, payable in monthly
payments of $362 including principal and interest
at the bank's index plus 2.45% (effective rate
of 5.50% at December 31,1998). Due January 2029.
-continued-
-32-
<PAGE>
Property description and financing arrangement continued-
Mortgage with Garfield Ricketts, a 60%
shareholder, in the amount of $31,300, payable in
monthly payments of $208 including principal and
interest at 7%. Balloon payment is due January 2004.
5) 222 Willoughby Drive, Naples, Florida -
House with one rental 156,000
Mortgage with Washington Mutual Bank in
the amount of $105,000, payable in monthly
payments of $596 including principal and interest
at the bank's index plus 2.45% (effective rate
of 5.50% at December 31,1998). Due January 2029.
Mortgage with Garfield Ricketts, a 60%
shareholder, in the amount of $51,000, payable in
monthly payments of $339 including principal and
interest at 7%. Balloon payment is due January 2004.
__________
Total Cost of Property Acquisitions and Related
Financing $ 544,000
</TABLE>
<TABLE>
<CAPTION>
The proforma effects of the Company's operations if REII had acquired
the five properties as of January 1,1996 are as follows:
<S>
1998 1997 1996
________ ________ ________
<C> <C> <C>
Rental Income $ 60,120 $ 59,820 $ 59,520
Comparable Expenses 48,985 49,237 49,645
________ ________ ________
Subtotal $ 11,135 $ 10,583 $ 9,875
Non-Comparable Expenses 33,522 37,034 34,939
________ ________ ________
Net Loss $ (22,387) $(26,451) $(25,064)
________ ________ ________
Non-comparable expenses include mortgage interest, depreciation,
corporate expenses, and income taxes. Comparable expenses include
advertising, repairs, maintenance, insurance, real estate taxes,
utilities, sales commissions, and other miscellaneous expenses.
Management believes that future estimated taxable operating results of
the properties will approximate the results as shown above.
-33-
<PAGE>
The Company plans to acquire 20 additional residential rental
properties and one commercial office property from Garfield Ricketts,
majority stockholder, as soon as permanent financing can be arranged.
Purchase price upon acquisition will be the properties' market value,
based on independent appraisals. Each property will be subject to an
updated independent appraisal at the time of acquisition. Market value
of the 21 properties is currently approximately $1.9 million, based on
Multiple Listing Service's market analysis, which tracks sales prices of
comparable properties within the area. Financial data of the 21
properties consisted of the following for the years ended December 31,
1998, 1997, and 1996:
</TABLE>
<TABLE>
<CAPTION>
<S>
1998 1997 1996
________ ________ ________
<C> <C> <C>
Rental Income $ 217,826 $ 221,755 $ 218,363
Comparable Expenses 99,235 89,355 87,313
________ ________ ________
Subtotal $ 118,591 $ 132,400 $ 131,050
Non-Comparable Expenses 128,335 123,988 129,626
________ ________ ________
Net Income (Loss) $ (9,744) $ 8,412 $ 1,424
________ ________ ________
Non-comparable expenses include mortgage interest, depreciation,
corporate expenses, and income taxes. Comparable expenses include
advertising, repairs, maintenance, insurance, real estate taxes,
utilities, sales commissions, and other miscellaneous expenses.
Management believes that future estimated taxable operating results of
the properties will approximate the results as shown above. Results
could differ based on the financing structure used to acquire the
properties. The Corporation is not aware of any material factors
relating to the properties that could cause the above financial
information not to be indicative of future operating results. The
Corporation does not intend to pay cash distributions from any positive
cash flow that may be generated from the properties.
ITEM 2
EXHIBIT 13 NONE
ITEM 3
EXHIBIT 27 FOLLOWS
-34-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Decurities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunder duly authorized
Dated March 14, 1999
REII INCORPORATED
(Formerly BAP Acquisition Corp.)
BY /S/ Garfield Ricketts by /s/ Una M. Ricketts
- ------------------------- -----------------------------
Garfield Ricketts-President Una M. Ricketts-Secretary/Treasurer
-35-
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 4993
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 864894
<PP&E> 772933
<DEPRECIATION> 0
<TOTAL-ASSETS> 864894
<CURRENT-LIABILITIES> 749922
<BONDS> 0
0
0
<COMMON> 4655
<OTHER-SE> 336381
<TOTAL-LIABILITY-AND-EQUITY> 864894
<SALES> 0
<TOTAL-REVENUES> 92633
<CGS> 0
<TOTAL-COSTS> 66512
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 15341
<INCOME-PRETAX> (15341)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (15912)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
