UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D,C 20549
FORM 10-KSB
[X] ANNUAL REPORT UNDER SECTION 13 OR 15 (d) THE
SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ending December 31, 1999
Commission File Number 21-16563-B
REII INCORPORATED
(Formerly BAP Acquisition Corp)
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(Exact Name of registrant as Specified in its Charter)
Delaware 51-0373976
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(State Or other Jurisdiction of (IRS Employee ID No.)
Incorporation or Organization)
1051 Fifth Avenue North, Naples, Florida 34102-5818
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(Address of Principal Executive Offices Zip Code)
(941)-261-3396
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(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, 1999 4,655,310 shares of common stock were outstanding
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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 5
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 7-11
Independent Auditors Report F1
ITEM 3 Financial Reports F2-F14
Notes to Consolidated Financial Statements --
ITEM 4 Changes In Disagreements with accountants on Accounting
and Financial Matters 12
PART 111
ITEM 1 Directors, Executive Officers, Promoters, and Control
Persons 12
ITEM 2 Executive Compensation 14
ITEM 3 Security Ownership of Certain Beneficial Owners and
Management 15
ITEM 4 Certain Relationships and Related Transactions 15
PART IV
ITEM 1 Exhibits and reports on Form 8-K 17
Signatures 17
Exhibit 27
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PART 1
ITEM I DESCRIPTION OF BUSINESS
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 and outstanding shares of
Common Stock of Ricketts Enterprises International, Inc., a Florida
Corporation (hereinafter "REI") Said acquisition was completed on
November 21,1995.
Prior to the acquisition of REI the Company had not engaged in any form
of commercial business activity and as a result had no operating history.
Further, prior to the acquisition of REI, neither the Company nor any of
its Officers, Directors, had any affiliation with REI and REI or any of
its Officers, Directors or Principal Shareholders had any affiliation
with the Company. 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. Dan McCaslin a
licensed Real Estate Broker in the state Of Florida, was appointed as an
Vice President and Director of REI. In March of 1997, Mr. Garfield Ricketts
obtained his Florida Real Estate Broker's License and now represents the
Company. Mr. McCaslin has since resigned his position with the company
because of other commitments.
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 three States (New York, 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.
As a result of the acquisition of 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. Even though AMSOUTH BANK had agreed
to finance the construction of six units on the Company's vacant building
lots with a construction loan of $223,000.00 Dollars, however no action has
been taken to date reagrding the construction of these units. An increase in
gross income does not necessarily equate 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, except for two single family residences and three
duplexes, acquired from Garfield due to a purchase agreement stated in a
letter of intent dated January 15th, 1995.
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REI acquired the Portfolio based solely on the assumption of the existing
outstanding mortgages in the amount of $148,148, Mr Ricketts contributed
equity in the properties of $ 140,342.00 and transaction costs in the
amount of $46,702 to shareholders equity in REI, except for the most recent
acquisition by REI from Garfield Ricketts. The purchase price of these five
properties was financed by a first mortgage of $358,500.00 provided by
WASHINGTON MUTUAL BANK FA, and a note from Garfield Ricketts
in the amount of $ 185,500.00 for a total acquisition cost of $ 544,000.00.
REI has an agreement in principal represented by a Letter of Intent dated
January 15, 1996 to acquire an additional 26 residential rental Properties
and one commercial office property held by the former REI shareholder,
Mr. Ricketts. The properties are valued at approximately $2.5 million
dollars. In the event of such an acquisition should occur, the current book
value of the Company is projected to increase by approximately $1.2 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 26 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 Officers, Directors,
Shareholders, or other related parties. However, it is anticipated that
once the 26 residential rental properties and the commercial property
are acquired that no other such transactions will be entered into
with related parties. Five of these properties have been acquired in the
fourth quarter of 1998, thereby leaving the amount of properties to be
acquired to be 21 residential rental properties and one commercial property.
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 business 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 three 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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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 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, as well as rental income at
a premiums 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 and a Licensed Real Estate
Broker, in the State of New York and Florida, has been acquiring and selling
real estate since 1981 and built a significant portfolio of residential
properties in New York, 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, 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 relative 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 or develop Real Estate.
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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 as
set forth in Exhibit II attached hereto and included herein. 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
$635.00 monthly for the rental, maintenance and other costs of the
facility. 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 fall 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 New York and 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
No information is presented as to industry segments. The Company is
presently engaged in a single line of business, the owning, rental, and
management of commercial and residential real estate and/or related real
estate products, and services. Reference is made to the statements
of income included herein in response to Part F/S of this Form 10-SB for a
statement of the Company's revenues and operating profit (loss) for the
past two fiscal years.
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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ITEM 2 DESCRIPTION OF PROPERTY
The Information required by this item 2, Description of Property, is set
forth in Item I "Description of Business", of this Form 10-KSB
Further discription of the Company's properties are:
5330 Jennings Street,
Naples, FL 34112:-A three Bedrooms, 2 bathrooms, Living room, Dining
room, single family house with a single attached garage.
5326 Jennings Street,
Naples, FL 34112- A three Bedroom, 2 Bathrooms, Living room, Dining
room, Single Family house with a single attached garage
5450 Hardee Street,
Naples, FL 34112:-A three Bedrooms, 2 Bathrooms, Living room, Dining
room, Family room, single family house.
5238/5240 Hardee Street,
Naples, FL 34112:-A Duplex consisting of 2 two Bedrooms, 1 Bathroom
living units.
4603 A/B Orchard Lane,
Naples, FL 34112:- A duplex consisting of 2 Two bedrooms, 1 Bathroom
Living units.
17605 North Hagen DR,
Houston Texas:- A Three Bedrooms, 2 Bathrooms, Living room, Dining
room with two car garage attached.
17539 North Hagen Dr.
Houston Texas:- A three Bedrooms, 2 Bathrooms, Living room, Dining
room, and 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.
Unit 6, Block 186, Lot 6,
Golden Gate, Florida 34116:-A building lot zoned for two residential
Units
222 Willoughby Drive,
Naples FL 34103:- Three Bedrooms, 2 1/2 Bathrooms, living room, Dining
room, a two car garage attached, and a screened below ground pool.
205 SW 33rd Street,
Cape Coral, FL 33991:-A three bedrooms, 2 Bathroom, Living room, Dining
room, a two car garage attached and a screened below ground pool
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1110 SE 9th Court,
Cape Coral, FL 33393:- a Duplex containing two 2 Bedroom, 2 bathroom
living units
1009 SE 9th Avenue;
Cape Coral, FL 33393:- a Duplex containing two 2 Bedroom, 2 bathroom
living units.
5247-5249 24th Avenue SW,
Golden Gate, FL 34116: a Duplex containing two 2 Bedroom, 2 bathroom
Living Units.
ITEM 3: LEGAL PROCEEDINGS
The company is not presently a party to any 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 31, 1999 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 3,704,380
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 10:30 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 settlement 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 or
Preferred 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
Bulletin Board Level.
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(B) Holders: The number of record holders of shares of the Company's
Common stock as of December 31, 1999 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
Company's common stock issued and outstanding as of December 31, 1998 was
4,655,310, of this amount 3,500,000 shares were issued in 1995 pursuant to the
acquisition of REI and said shares are deemed "restricted securiries" 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.
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 70% of total revenues and real estate
sales and management services, representing approximately 30% 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, 1999 and 1998 was 91.1% and 85.6%,
respectively. The increase was due to the refinancing of two mortgages and
a decrease in stockholders' equity due to the loss incurred in 1999.
The company's source of working capital is from rental operating
activities nd prior 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 1999 was negative $4,161
compared to negative $8,011 and positive $16,300 in 1998 and 1997,
respectively. The negative cash flow in 1999 was primarily due to payment
of current liabilities.
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.
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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 1999 or 1997.
Capital expenditures for improvements to income producing properties
during 999 totaled $4,437, compared to $8,073 and $-0- in 1998 and 1997,
respectively.
Capital expenditures for office equipment additions during 1999
totaled $1,643, compared to $2,430 and $4,204 in 1998 and 1997, respectively.
Net cash provided by financing activities for 1999 was $24,687,
compared to $10,021 and negative $9,797 in 1998 and 1997, respectively. The
increase in 1999 was due to the refinancing of two mortgages. Other
fluctuations are due to changes in amounts due to Garfield Ricketts, majority
stockholder, for collection of rents on his personal properties.
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 as of December 31, 1999 was
approximately $2,072,000, 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
$1,005,000 as of December 31, 1999, 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 updated independent property
appraisals.
The company will require funds to acquire additional income producing
properties and/or real estate related entities. 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:
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<TABLE>
<CAPTION>
Year Ended December 31,
1999 1998 1997
_______ _______ _______
<S> <C> <C> <C>
Revenues:
Rental Income 79.2% 61.1% 69.5%
Management Services 17.3% 25.0% 30.2%
Commissions 3.4% 13.7% 0.0%
Interest and Other 0.1% 0.2% 0.3%
_______ _______ _______
Total Revenues 100.0% 100.0% 100.0%
_______ _______ _______
Expenses
Direct Expenses:
Depreciation 18.2% 9.5% 10.2%
Interest 32.3% 16.6% 17.9%
Real Estate Taxes 11.8% 10.4% 11.1%
Repairs and Maintenance 10.6% 12.0% 11.5%
Utilities 2.5% 4.7% 5.9%
Insurance 4.5% 5.2% 7.2%
Other Direct Expenses 3.3% 3.3% 1.0%
_______ _______ _______
Total Direct Expenses 83.2% 61.7% 64.8%
_______ _______ _______
General and Administrative Expenses:
Office Occupancy Expense 7.0% 11.2% 11.5%
Office Supplies and Expense 2.7% 4.1% 4.3%
Professional Fees 10.7% 15.8% 11.1%
License, Dues, and Fees 10.5% 7.5% 7.6%
Depreciation and Amortization 13.6% 11.8% 12.6%
Other Administrative Expenses 3.7% 5.1% 6.5%
_______ _______ _______
Total General and
Administrative Expenses 48.2% 55.5% 53.6%
_______ _______ _______
Total Expenses 131.4% 117.2% 118.4%
_______ _______ _______
Loss Before Provision
for Taxes (31.4)% (17.2)% (18.4)%
Provision for Taxes 0.0% 0.0% 0.0%
_______ _______ _______
Net Loss (31.4)% (17.2)% (18.4)%
_______ _______ _______
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Year Ended December 31, 1999 Compared With Year Ended December 31, 1998
Net Loss
The company reported a net loss of $45,850 in 1999 compared to a net
loss of $15,912 in 1998. The losses were primarily due to depreciation,
mortgage refinancing fees, and legal fees paid to register with the National
Association of Securities Dealers. The increased loss in 1999 was primarily
due to increased direct expenses from the five (5) rental properties
acquired in December 1998 and the write off of organizational costs in
accordance with the American Institute of Certified Public Accountants'
Statement of Position 98-5 on reporting the costs of start-up activities.
Revenues
Total revenues for 1999 increased by $53,454 (57.7%) to $146,107 from
$92,653 for 1998. The increase was due primarily to rental income received
from the addition of five (5) new rental properties, which were purchased in
December 1998.
Direct Expenses
Direct expenses for 1999 increased by $64,291 (112.4%) to $121,569
(83.2% of total revenues) from $57,190 (61.7% of total revenues) for 1998.
The increase was due primarily to the addition of the new rental properties
in December 1998.
General and Administrative Expenses
General and administrative expenses for 1999 increased by $19,013
(37.0%) to $70,388 (48.2% of total revenues) from $51,375 (55.5% of total
revenues) for 1998. The increase was primarily due to mortgage refinancing
fees, legal fees paid to register with National Association of Securities
Dealers, and the write off of organizational costs in accordance with the
American Institute of Certified Public Accountants' Statement of Position
98-5 on reporting the costs of start-up activities. The decrease in general
and administrative expenses as a percentage of total revenues was due
primarily to the increase in rental income from the addition of five (5)
rental properties in December 1998.
Income Taxes
There was no provision for Federal Income Tax in 1999 or 1998 because
the company was operating at a loss during both years.
Year Ended December 31, 1998 Compared With Year Ended December 31, 1997
Net 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 $10,531 (12.8%) to $92,653 from
$82,122 for 1997. The increase was 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.
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Direct Expenses
Direct expenses for 1998 increased by $3,970 (7.5%) to $57,190 (61.7%
of total revenues) from $53,220 (64.8% of total revenues) for 1997. The
increase was primarily due 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 was 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 $7,395
(16.8%) to $51,375 (55.5% of total revenues) from $43,980 (53.6% of total
revenues) for 1997. The increase was primarily due 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.
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REII INCORPORATED
(FORMERLY BAP ACQUISITION CORP.)
AND SUBSIDIARY
(A DELAWARE CORPORTION)
Naples, Florida
TABLE OF CONTENTS
Independent Auditor's Report F-1
Consolidated Balance Sheets at December 31, 1999 and 1998 F-2
Consolidated Statements of Changes in Stockholders' Equity
for the Years Ended December 31, 1999, 1998 and 1997 F-3
Consolidated Statements of Operations for the Years Ended
December 31, 1999, 1998 and 1997 F-4
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1999, 1998 and 1997 F-5
Notes to the Consolidated Financial Statements F-6 to F-15
<PAGE>
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, 1999 and 1998, 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, 1999. 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, 1999 and 1998 and the consolidated results of their operations and
their cash flows for each of the three years in the period ended
December 31, 1999, in conformity with generally accepted accounting
principles.
Rochester, New York
February 12, 2000
F-1
<PAGE>
</TABLE>
<TABLE>
<CAPTION>
REII INCORPORATED
(FORMERLY BAP ACQUISITION CORP.)
AND SUBSIDIARY
(A Delaware Corporation)
Naples, Florida
CONSOLIDATED BALANCE SHEETS
- -----------------------------------------------------------------------
December 31, 1999 1998
- -----------------------------------------------------------------------
ASSETS
<S> <C> <C>
Revenue Producing Assets -
Net of Accumulated Depreciation $750,763 $772,933
Land Held for Investment 24,000 24,000
Cash and Cash Equivalents 19,439 4,993
Other Current Assets 8,681 5,353
Tenant Escrow Account 39,483 32,033
Office Property and Equipment -
Net of Accumulated Depreciation 7,422 7,715
Organization Costs -
Net of Accumulated Amortization --- 17,867
- ------------------------------------------------------------------------
Total Assets $849,788 $864,894
- ------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Mortgages Payable-Banks $524,919 $495,528
Mortgages Payable - Stockholder 183,201 184,900
Accounts Payable and Accrued Expenses 4,319 5,712
Tenant Escrow Liability 39,483 32,033
Due to Stockholder 28,744 31,749
- ------------------------------------------------------------------------
Total Liabilities 780,666 749,922
- ------------------------------------------------------------------------
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 (271,914) (226,064)
- ------------------------------------------------------------------------
Total Stockholders' Equity 69,122 114,972
- ------------------------------------------------------------------------
Total Liabilities and Stockholders' Equity $ 849,788 $864,894
- ------------------------------------------------------------------------
F-2
<PAGE>
REII INCORPORATED
(FORMERLY BAP ACQUISITION CORP.)
AND SUBSIDIARY
(A Delaware Corporation)
Naples, Florida
</TABLE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
- ---------------------------------------------------------------------------
Common
Stock Additional Total
$.001 Par Paid-In Stockholders'
Shares Value Capital Deficit Equity
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance-January 1,1997 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
Net Loss - 1999 --- --- --- (45,850) (45,850)
- ----------------------------------------------------------------------------
Balance-December 31,1999 4,655,310 $4,655 $336,381 $(271,914) $ 69,122
- ----------------------------------------------------------------------------
F-3
<PAGE>
</TABLE>
<TABLE>
<CAPTION>
REII INCORPORATED
(FORMERLY BAP ACQUISITION CORP.)
AND SUBSIDIARY
(A Delaware Corporation)
Naples, Florida
CONSOLIDATED STATEMENTS OF OPERATIONS
- -----------------------------------------------------------------------------
Years Ended December 31, 1999 1998 1997
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues
Commissions $ 5,006 $ 12,665 $ ---
Management Services 25,252 23,213 24,810
Rental Income 115,714 56,565 57,072
Interest and Other 135 210 240
- ----------------------------------------------------------------------------
Total Revenues 146,107 92,653 82,122
- ----------------------------------------------------------------------------
Expenses
Direct Expenses
Advertising 1,228 1,968 126
Commissions and Management Fees 3,605 1,126 693
Depreciation 26,606 8,810 8,334
Insurance 6,626 4,844 5,890
Interest 47,123 15,341 14,727
Real Estate Taxes 17,242 9,630 9,156
Repairs and Maintenance 15,492 11,076 9,456
Utilities 3,647 4,395 4,838
- ----------------------------------------------------------------------------
Total Direct Expenses 121,569 57,190 53,220
- ----------------------------------------------------------------------------
General and Administrative Expenses
Contributions 230 300 260
Depreciation and Amortization 19,804 10,899 10,292
Dues and Subscriptions 2,947 3,114 4,271
Licenses, Dues and Fees 12,460 3,825 1,938
Occupancy Expenses 10,138 10,384 9,455
Office Supplies and Expense 3,995 3,807 3,534
Professional Fees 15,627 14,628 9,137
Telephone 3,909 3,592 4,099
Travel and Entertainment 1,278 826 994
- ----------------------------------------------------------------------------
Total General and
Administrative Expenses 70,388 51,375 43,980
- ----------------------------------------------------------------------------
Total Expenses 191,957 108,565 97,200
- ----------------------------------------------------------------------------
Loss Before Provision for Taxes (45,850) (15,912) (15,078)
Provision for Taxes --- --- ---
- ----------------------------------------------------------------------------
Net Loss $ (45,850) $ (15,912) $(15,078)
- ----------------------------------------------------------------------------
Loss per Common Share -
Basic and Diluted (0.010) (0.003) (0.003)
- ----------------------------------------------------------------------------
Weighted Average Number of-
Common Shares Outstanding 4,655,310 4,655,310 4,655,310
- ----------------------------------------------------------------------------
F-4
<PAGE>
</TABLE>
<TABLE>
<CAPTION>
REII INCORPORATED
(FORMERLY BAP ACQUISITION CORP.)
AND SUBSIDIARY
(A Delaware Corporation)
Naples, Florida
CONSOLIDATED STATEMENTS OF CASH FLOWS
- ----------------------------------------------------------------------------
Years Ended December 31, 1999 1998 1997
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
Cash Flows from Operating Activities
Net Loss $(45,850) $(15,912) (15,078)
Adjustments to Reconcile Net Loss
to Net Cash Flows from Operating Activities:
Amortization 17,867 9,322 9,322
Depreciation 28,543 10,387 9,304
Changes in Assets and Liabilities:
Other Current Assets (3,328) (2,385) (1,076)
Accounts Payable and Accrued Expenses (1,393) (9,423) 13,828
- ----------------------------------------------------------------------------
Net Cash Flows from Operating Activities (4,161) (8,011) 16,300
- ----------------------------------------------------------------------------
Cash Flows from Investing Activities
Acquisition of Office Equipment (1,643) (2,430) (4,204)
Improvements to Income-
Producing Properties (4,437) (8,073) ---
- ----------------------------------------------------------------------------
Net Cash Flows from Investing Activities (6,080) (10,503) (4,204)
- ----------------------------------------------------------------------------
Cash Flows from Financing Activities
Mortgage Refinancing 37,312 --- ---
Repayment of Mortgages (9,620) (4,705) (4,265)
Change in Due to Stockholder (3,005) 14,726 (5,532)
- ----------------------------------------------------------------------------
Net Cash Flows from Financing Activiti 24,687 10,021 (9,797)
- ----------------------------------------------------------------------------
Net Increase (Decrease)-
in Cash and Cash Equivalents 14,446 (8,493) 2,299
Cash and Cash Equivalents-
Beginning of Year 4,993 13,486 11,187
- ----------------------------------------------------------------------------
Cash and Cash Equivalents-End of Year $ 19,439 $ 4,993 $ 13,486
- ----------------------------------------------------------------------------
SUPPLEMENTARY DISCLOSURES
- ----------------------------------------------------------------------------
Interest Paid $ 47,123 $ 15,341 $ 14,727
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 $ ---
F-5
<PAGE>
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
Nature of Operations
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, Texas, and New York.
Principles of Consolidation
The consolidated financial statements include the accounts of
the Corporation and its subsidiary, Ricketts Enterprises International,
Inc. All significant intercompany balances and transactions have been
eliminated in consolidation.
Segment Data, Geographic Information, and Significant Customers
The Corporation operates in the rental real estate industry and
receives rental revenues from third party tenants located in Florida and
Texas. Approximately 70% of revenues are from rental operations, 30%
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.
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. -continued
F-6
<PAGE>
REII INCORPORATED
(FORMERLY BAP ACQUISITION CORP.)
AND SUBSIDIARY
(A DELAWARE CORPORATION)
Naples, Flroida
NOYTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ---------------------------------------------------------------------------
NOTE A- 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, 1999 and 1998 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, 1999 and 1998 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. Rents receivable are included in the
balance sheet in other current assets.
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.
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.
F-7
<PAGE>
REII INCORPORATED
(FORMERLY BAP ACQUISITION CORP)
AND SUBSIDIARY
(A DELAWARE CORP,)
Naples, Florida
NOTE A-Nature of Operations and Summary of ignificant accounting policies-
continued.
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 that were capitalized in 1995 from the
acquisition of REI, the Corporation's wholly owned subsidiary, were
written off to expense in 1999 in accordance with the American Institute
of Certified Public Accountants' Statement of Position 98-5 on reporting
the costs of start-up activities. The organization costs were formerly
being amortized over 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." Basic earnings per share is
calculated by dividing net income (loss) available to common
stockholders by the weighted average number of common shares outstanding
for each period. Diluted earnings per share are identical to basic
earnings per share for the periods presented since the Corporation has
no stock options, warrants, or convertible securities.
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.
F-8
<PAGE>
</TABLE>
<TABLE>
<CAPTION>
REII INCORPORATED
(FORMERLY BAP ACQUISITION CORP)
AND SUBSIDIARY
(A DELAWARE CORPORATION)
Naples, Florida
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ----------------------------------------------------------------------------
NOTE A- Nature and Summary of Significant Accounting Ploicies-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 when 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:
- ---------------------------------------------------------------------------
December 31, 1999 1998
- ---------------------------------------------------------------------------
<S> <C> <C>
Land $ 101,620 $ 101,620
Apartment Buildings 709,365 709,365
Building Improvements 12,510 8,073
- ---------------------------------------------------------------------------
$ 823,495 $ 819,058
Less: Accumulated Depreciation 72,732 46,125
- ---------------------------------------------------------------------------
Net Revenue Producing Assets $ 750,763 $ 772,933
- ---------------------------------------------------------------------------
Depreciation expense for the years ended December 31, 1999,
1998, and 1997 was $26,607, $8,810, and $8,334, respectively.
Note D - Office Property and Equipment
Office property and equipment are recorded at cost and consisted
of the following:
- ---------------------------------------------------------------------------
December 31, 1999 1998
- ---------------------------------------------------------------------------
<S> <C> <C>
Office Equipment $ 12,132 $ 10,489
Office Furniture 7,644 7,644
$ 19,776 $ 18,133
Less: Accumulated Depreciation 12,354 10,418
- ---------------------------------------------------------------------------
Net Property and Equipment $ 7,422 $ 7,715
- ---------------------------------------------------------------------------
F-9
<PAGE>
</TABLE>
<TABLE>
<CAPTION>
REII INCORPORATED
(FORMERLY BAP ACQUISITION CORP.)
AND SUBSIDIARY
(A DELAWARE CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------
Depreciation expense for the years ended December 31, 1999,
1998, and 1997 was $1,936, $1,577, and $970, respectively.
Note E - Organization Costs
Organization costs consisted of the following:
- ---------------------------------------------------------------------------
December 31, 1999 1998
- ---------------------------------------------------------------------------
<S> <C> <C>
Legal Fees $ 40,000 $ 40,000
Property Transfer Fees 6,702 6,702
- ---------------------------------------------------------------------------
$ 46,702 $ 46,702
Less: Accumulated Amortization 46,702 28,835
- ---------------------------------------------------------------------------
Net Organization Costs $ --- $ 17,867
- ---------------------------------------------------------------------------
The costs were capitalized and being amortized over five years
until 1999 when they were fully expensed in accordance with the American
Institute of Certified Public Accountants' Statement of Position 98-5 on
reporting the costs of start-up activities. Amortization expense for
the years ended December 31, 1999, 1998, and 1997 was $17,867, $9,322,
and $9,322, respectively.
Note F - Mortgages Payable
Mortgages payable to banks consisted of the following:
- ---------------------------------------------------------------------------
December 31, 1999 1998
<C> <C>
Midland Mortgage Company
Mortgage on property located at
4603 Orchard Lane in Naples, Florida,
due December 2020, payable in monthly
payments of $307 including
principal and interest at 10.00%. $ 22,534 $ 23,904
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%. $ 18,982 $ 20,192
F-10
<PAGE>
<TABLES>
<CAPTION>
REII INCORPORATED
(FORMERLY BAP ACQUISITION CORP)
AND SUBSIDIARY
(A DELAWARE CORPORATION)
Naples, Florida
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ----------------------------------------------------------------------------
Note F- Mortgages Payable- comntinued
- ----------------------------------------------------------------------------
December 31 1999 1998
- ----------------------------------------------------------------------------
<S> <C> <C>
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%. 35,392 36,202
Washington Mutual Bank
Mortgage on property located at
5326 Jennings Street in Naples, Florida,
due April 2029, payable in monthly
payments of $340 including principal
and interest at the bank's index plus
2.90% (effective rate of 7.868% at
December 31, 1999). Mortgage was
formerly privately held by an
independent third party and was
refinanced in April 1999. 46,629 37,342
Mortgage on property located at
5330 Jennings Street in Naples, Florida,
due April 2029, payable in monthly
payments of $333 including principal
and interest at the bank's index plus
2.90% (effective rate of 7.868% at
December 31, 1999). Mortgage was
formerly privately held by an
independent third party and was
refinanced in April 1999. 45,600 18,788
Mortgage due on property located at
5247-49 24th Avenue SW in Naples,
Florida, due January 2029, payable
in monthly payments of $536 including
principal and interest at the bank's
index plus 2.50% (effective rate of
7.468% at December 31, 1999). 76,303 77,000
Mortgage due on property located at
1110 SE 9th Court in Cape Coral,
Florida, due January 2029, payable
in monthly payments of $395 including
principal and interest at the bank's
index plus 2.50% (effective rate of
7.468% at December 31, 1999). 54,103 54,600
F-11
<PAGE>
</TABLE>
<TABLE>
<CAPTION>
REII INCORPORATED
(FORMERLY BAP ACQUISITION CORP.)
AND SUBSIDIARY
(A DELAWARE CORPORATION)
Naples, Florida
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------
Note F - Mortgages Payable - continued
- --------------------------------------------------------------------------
December 31, 1999 1998
- --------------------------------------------------------------------------
<S> <C> <C>
Washington Mutual Bank - continued
Mortgage due on property located at
1009 SE 9th Avenue in Cape Coral,
Florida, due January 2029, payable in
monthly payments of $409 including
principal and interest at the bank's
index plus 2.50% (effective rate of
7.468% at December 31, 1999). 58,218 30,200
Mortgage due on property located at
205 SW 33rd Street in Cape Coral,
Florida, due January 2029, payable
in monthly payments of $442 including
principal and interest at the bank's
index plus 2.45% (effective rate of
7.418% at December 31, 1999). 63,118 63,700
Mortgage due on property located at
222 Willoughby Drive in Naples,
Florida, due January 2029, payable
in monthly payments of $728 including
principal and interest at the bank's
index plus 2.45% (effective rate of
7.418% at December 31, 1999). 104,040 105,000
- ----------------------------------------------------------------------------
Total Mortgages Payable - Banks $ 524,919 $ 495,528
- ----------------------------------------------------------------------------
Mortgages payable to stockholder consisted of the following:
- ----------------------------------------------------------------------------
December 31, 1999 1998
- ----------------------------------------------------------------------------
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. $ 37,647 $ 38,000
F-12
<PAGE>
</TABLE>
<TABLE>
<CAPTION>
REII INCORPORATED
(FORMERLY BAP ACQUISITION CORP.)
AND SUBSIDIARY
(A DELAWARE CORPORATION)
Naples, Flroida
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ---------------------------------------------------------------------------
Mortgage payable to stockholder continued
- ---------------------------------------------------------------------------
December 31, 1999 1998
- ---------------------------------------------------------------------------
<S> <C> <C>
Garfield Ricketts
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. 34,099 34,400
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. 29,920 30,200
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. 31,009 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. 50,526 51,000
- ----------------------------------------------------------------------------
Total Mortgages Payable - Stockholder $ 183,201 $ 184,900
- ----------------------------------------------------------------------------
Total Mortgages Payable - Banks and Stockholder $ 708,120 $ 680,428
- ----------------------------------------------------------------------------
Aggregate annual maturities of mortgages for the five years succeeding
December 31, 1999 are as follows:
2000 2001 2002 2003 2004 Thereafter Total
- ---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$10,337 $11,243 $12,233 $13,313 $186,108 $474,886 $708,120
Interest expense for the years ended December 31, 1999, 1998,
and 1997 was $47,123, $15,341, and $14,727, respectively.
F-13
<PAGE>
REII INCORPORATED
(FORMERLY BAP ACQUISITION CORP)
AND SUBSIDIARY
(A DELAWARE CORPORATION)
Naples, Florida
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, 1999, 1998 and 1997 is included in occupancy expenses.
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 1999, 1998 and 1997 were $16,235,
$18,032, and $19,940, 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 $76,840 of net operating loss carryforwards
for federal tax purposes as of December 31, 1999, which are available to
offset future taxable income and expire during the years 2012 through
2019.
Note I - Acquisition of Assets
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:
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------
December 31, 1999 1998 1997
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
Rental Income $ 54,970 $ 54,212 $ 51,620
Comparable Expenses 22,583 31,133 30,633
- ---------------------------------------------------------------------------
Subtotal $ 32,387 $ 23,079 $ 20,987
Non-Comparable Expenses 31,003 33,522 37,034
- ---------------------------------------------------------------------------
Net Income (Loss) $ 1,384 $(10,443)$(16,047)
F-14
<PAGE>
REII INCORPORATED
(FORMERLY BAP ACQUISITION CORP)
AND SUBSIDIARY
(A DELAWARE CORPORATION)
Naples, Florida
</TABLE>
<TABLE>
<CAPTION>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------
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 $2,072,000, 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:
- ---------------------------------------------------------------------------
December 31, 1999 1998 1997
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
Rental Income $ 232,531 $ 217,826 $ 221,755
Comparable Expenses 98,356 99,235 89,355
- ---------------------------------------------------------------------------
Subtotal $ 134,175 $ 118,591 $ 132,400
Non-Comparable 122,408 128,335 123,988
- ---------------------------------------------------------------------------
Net Income (Loss) $ 11,767 $ (9,744)$ 8,412
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 - Subsequent Event
The Corporation is in the process of acquiring six additional
residential rental properties and one commercial office property from
majority stockholders Garfield Ricketts and Una Ricketts via acquisition
of 100% of the common stock of the Florida corporation, Ricketts
Enterprises of Naples, Inc. ("RENI"). Assets and liabilities of RENI,
which were acquired from Garfield and Una Ricketts, consist solely of
seven properties and their mortgages, and are recorded at their fair
market value of $975,500 and $910,000, respectively, based on
independent appraisals and current mortgage values. The principal
business activity relating to the properties will be carried on through
the wholly owned subsidiary, RENI.
F-15
<PAGE>
ITEM 4: CHANGES IN DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURES
From the inception of the Company until through the acquisition of REI and to
December 31, 1999 its accountants were Rotenberg & Company, LLP of Rochester
New York. At no time have there been any disagreements with prior or current
accountants, regarding any matter of accounting principles or practices,
financial disclosures, or auditing scope or procedure.
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 71 President/CEO/Director
Karen Ricketts 39 Vice President/Director
Una M. Ricketts 67 Secretary/Treasurer/Director
All Company Directors were elected upon the closing of the acquisition of
REI on November 21, 1995, and 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 31, 1999. at 10:30 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 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.
-12-
<PAGE>
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.
There are no current plans nor at present does the Company have any current
or future obligation to compensate its Officers and Directors.
Compensation of Officers and Directors of the Company is at the discretion
of the Board of Directors and the current circumstances may change in the
future where the Officers and Directors of the Comapny receive compensation.
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 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, the 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 1983 prior to his retirement.
He has been Licensed as a Real Estate Broker in the State of New York
since 1989, and the State Of Florida in 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 will 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.
-13-
<PAGE>
Until the acquisition of REI the Company paid no compensation to its
Officers and Directors and the Company did not have any Employees.
REI was previously organized as a Sub-Chapter "S" Corporation and the
net income of REI was distributed to its Stockholders on an annual basis.
</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 1997 0 0 0 0
President & CEO 1998 0 0 0 0
1999 0 0 0 0
Una Ricketts 1997 0 0 0 0
Secretary/Treasurer 1998 0 0 0 0
1999 0 0 0 0
karen Ricketts 1997 0 0 0 0
VP/Director 1998 0 0 0 0
1999 0 0 0 0
The Officers and Directors of the Company, after the acquisition of REI,
have not received any form of cash or other compensation.
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 on a cash basis. 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 a
formulae 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 formulae for determining the value of the shares of the
Company's Commons Stock has been determined at this time and the Board of
Directors has no plans to make such a determination in the near future.
-14-
<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 2,984,490 (1) 64.11%
7751 Naples Heritage DR.
Naples, FL 34112
Una M. Ricketts 700,000 (2) 15.00%
7751 Naples Heritage DR.
Naples, FL 34112
Karen Ricketts 0 (3) 0.37%
13 Terrace Circle, Apt 2G
Great Neck NY 11021
All Directors and Executive
Officers as a group (3 Persons) 3,500,000 79.48%
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 being issued and
outstanding on December 31, 1999, 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.
-15-
<PAGE>
The Company acquired 100 % of the issued and outstanding Shares of
Ricketts Enterprises International, Inc. on November 21, 1995 from Garfield
and Una Ricketts, husband and wife, in exchange for 3,500,000 shares of
Common Stock of the Company. Prior to the acquisition of REI by the Company
Garfield and Una Ricketts, husband and wife, sold to REI a portfolio of
Real Estate involving ten real estate properties (see item 3, Business
Description for details). The value of the properties was considered to
be $275,180. As part of the transaction REI assumed first mortgages
in the amount of $148,148.00. Mr. & Mrs. Ricketts contributed their
equity of $127,032 to stockholder equity of REI. In addition Mr. & Mrs
Ricketts paid transaction cost associated with the transfer of the
properties and the acquisition of REI by the Company in the amount of
$46,702. In addition Mr. Ricketts converted a loan due him in the amount of
$152,249 to common stock as additional paid in capital.
The acquisition of additional income producing commercial and residential
real estate properties may occur as a result of a January 15, 1996 Letter
of Intent the Company entered into with Mr. Garfield Ricketts, President
of the Company. The terms of said Letter of Intent call for the Company
to assume, refinance or payoff $1,310,396.49, less any further debt
reduction, in existing debt in the form of first mortgages on the existing
27 properties being acquired for a total cost of $2,482,900. The balance
of $1,172,403.51 is due Mr. Ricketts in the form of cash, a note, or at
his option additional shares of restricted Common Stock in the Company.
The purchase price of $2,492,800 was determined by the lower of the cost or
current market value of each property based on General Market Analysis as
determined from information provided by the Multiple Listing Services of
Naples, Florida, and Houston, Texas.
Before the Company proceeds under the Letter of Intent each property
will be the subject of a current appraisal, by a licensed Real Estate
Appraiser, to determine the value of each of the subject properties at
the time that the Letter of Intent is exercised, and if any material
changes have occurred the Company will negotiate a more favorable
purchase price. 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 not therefore encounter a shortage of capital to accomplish 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 $635 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 control with respect to entering into future transactions
with its Officers, Directors, Affiliates or a Related Party.
-16-
<PAGE>
PART IV
ITEM 1
EXKIBITS AND REPORTS ON FORM 8-k
NONE
ITEM 2
EXHIBIT 13 NONE
ITEM 3
EXHIBIT 27 FOLLOWS
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 February 24th, 1999
BAP ACQUISITION CORP.
BY /S/ Garfield Ricketts by /s/ Una M. Ricketts
- ------------------------- -----------------------------
Garfield Ricketts-President Una M. Ricketts-Secretary/Treasurer
-17-
</TABLE>
<TABLE> <S> <C>
<PAGE>
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<S> <C> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 19,439
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 849,788
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 849,788
<CURRENT-LIABILITIES> 780,666
<BONDS> 0
0
0
<COMMON> 4,655
<OTHER-SE> 336,381
<TOTAL-LIABILITY-AND-EQUITY> 849,788
<SALES> 0
<TOTAL-REVENUES> 146,107
<CGS> 0
<TOTAL-COSTS> 191,957
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (45,850)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (45,850)
<EPS-BASIC> (.01)
<EPS-DILUTED> (.01)
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