U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
|X| Quarterly Report under Section 13 or 15(d) of the Securities Exchange Act
of 1934 For the quarterly period ended September 30, 1997
OR
|_| Transition Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from ______________ to _______________
Commission File Number 33-95758
INVESTMENT INCOME PROPERTIES OF AMERICA, INC.
------------------------------------------------------
(Exact name of registrant as specified in its Charter)
Delaware 65-0544042
-------- ----------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
950 North Federal Highway, Suite 219 Pompano Beach, Florida 33062
- --------------------------------------------------------------- ---------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 954-783-2004
_____________________________________________________________________
(Former name, former address and former fiscal year, if changed since
last report)
Indicate by check whether the Registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter 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 |XX| No |_|
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date.
265,450 shares of outstanding as of September 30, 1997
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INVESTMENT INCOME PROPERTIES OF AMERICA, INC.
INDEX
Part I FINANCIAL INFORMATION Page
----
Item 1 Financial Statements
Balance Sheets as of September 30, 1997
(Unaudited) and December 31, 1996...............
Statements of Operations for the three months
and nine months ended September 30, 1997
and 1995 and 1996 (Unaudited)...................
Statements of Cash Flows for the nine
months ended September 30, 1997 and 1996
(Unaudited).....................................
Notes to Financial Statements (unaudited)..........
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations.............
Part II OTHER INFORMATION
Item 6 Exhibits Index
Signatures...................................................
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
This Form 10-Q contains forward-looking statements including, without
limitation, statements relating to development activities of the Company within
the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934. Although the Company believes that the
expectations reflected in such forward- looking statements are based on
reasonable assumptions, the Company's actual results and performance of
apartment communities could differ materially from those set forth in the
forward-looking statements.
Overview
The following discussion should be read in conjunction with the Financial
Statements of the Company and the Notes thereto appearing elsewhere herein.
As of September 30, 1997, there were 265,450 shares outstanding of which
238,000, or 89.6% were owned by the investors and 27,450 or 10.4% were
owned by other stockholders (including certain officers and directors of the
Company).
Historical Results of Operations
The Company entered into an agreement on December 20, 1996 to purchase the
Spring House Apartments in Tamarac, Florida. The purchase price was $16,490,000
with a closing date of February 28, 1997. A deposit of $25,000 was required and
paid in January 1997. The apartment building purchase will be financed by a
private placement or a public offering of the Company's stock. On January 21,
1997, the agreement to purchase Spring House Apartments dated December 20, 1996
was amended. The agreement extends the closing date to March 28, 1997. A deposit
of $100,000 was required upon the execution of the amended agreement. On March
25, 1997, the agreement to purchase Spring House Apartments dated January 21,
1997 was amended. The agreement extends the closing date to May 5, 1997. A
deposit of $25,000 was required upon the execution of the amended agreement. As
of June 5, 1997, the Company has not closed on the property and has$175,000 in
nonrefundable deposits towards the purchase.
The contract was terminated because the Company was not able to raise the
necessary funds to purchase the Spring House Apartments. The $175,000 deposit
was retained by the seller and expenses by the Company.
On June 30, 1997, the Company purchased an office building in Pompano Beach,
Florida for $2,600,000. The office complex has approximately 40,000 square feet.
The office building where Investment Income Properties of America, Inc. has its
corporate headquarters was financed through a purchase money mortgage of
$2,080,000 and funds
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provided through loans by the individuals who also own shares in the Company.
The mortgage bears interest at 1% below the prime rate is payable monthly, and
is collateralized by the property. During any time the mortgage is outstanding,
the seller has the option to convert the mortgage and note to common stock.
Results of Operations For nine months ended September 30, 1997 and 1996.
For the nine months ended September 30, 1997, the Company had a net loss of
$604,185 compared to a net loss of $428,840 for the same period ended September
30, 1996.
For the nine months ended September 30, 1997, rental income increased, $106,009
to $106,009 from $0 for the nine months ended September 30, 1996. The increase
is due to rental income from the office complex acquired on June 30, 1997.
Interest income increased $422 to $1,129 for the nine months ended September 30,
1997 compared to $707 for the same period in 1996 primarily due to increase in
cash in interest bearing accounts obtained through loans from related parties.
Interest expense increased $72,518 to $103,201 for the nine months ended
September 30, 1997 compared to $103,201 for the same period in 1996, primarily
due to increase in loans from related parties and interest on the mortgage
obtained in connection with the purchase of the Office complete in June 1997.
General and administrative expense were $607,763 for the nine months ended
September 30, 1997 compared to $398,864 for the same period in 1996. The
increase is primarily due to increased professional Fees and operating costs
associated with the newly acquired office complex.
Results of Operations For the three months ended September 30, 1997 and 1996.
For the three months ended September 30, 1997 the Company had a net loss of
$176,428 compared to a net loss of $255,407 for the three months ended September
30, 1996.
For the three months ended September 30, 1997, interest income increased $68 to
$149 compared to $81 for the three months ending September 30, 1996. The
increase in interest income is due to an increase in cash in interest bearing
accounts as a result of additional funds from related parties.
Interest expense increased $51,868 to $62,984 for the three months ended
September 30, 1997 compared to $11,116 for the three months ended September 30,
1996, primarily due to increase in loans from related parties and interest from
the mortgage on the office complex.
Selling general and administrative expenses were $219,602 for the three months
ended September 30, 1997 compared to $44,372 for the three months ended
September 30, 1996. The increase is primarily due to increase in professional
fees and costs associated with the purchase of the office complex in June, 1997.
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Liquidity and Capital Resources
The Company's outstanding indebtedness at September 30, 1997 totalled
$3,916,685. This amount includes approximately $2,059,132 in fixed rate
conventional mortgages and $1,585,000 of unsecured notes payable to related
parties.
At September 30, 1997, the Company had a working capital deficit of $1,822,158
as compared to working capital deficit of $777,525 at December 31, 1996. The
increase in the working capital deficit was primarily attributable to an
increase in loans from related parties.
Net cash used in operating activities was $503,060 for the nine months ended
September 30, 1997 as compared to cash used in operating activities of $148,866
for the nine months ended September 30, 1996. The increase in cash used in
operating activities is primarily attributable to an increase in the net loss
for the nine months ended September 30, 1997, as compared to the same period in
1996. Net cash provided from investing activities was $507,650 for the nine
months ended September 30, 1997, as compared to cash used in investing
activities of $6,504 for the nine months ended September 30, 1996. The increase
in cash used in investing activities for the nine months ended September 30,
1997 was attributable primarily to the purchase of the office complex(the 950
Professional Building). Net cash provided by financing activities was $1,034,334
for the nine months ended September 30, 1997 as compared to net cash provided by
financing activities for the nine months ended September 30, 1996 of $97,500.
The increase in cash provided by financing activities is primarily attributable
to additional funds provided by related parties.
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles, which contemplate continuation of the
Company as a going concern. However, the Company sustained a substantial loss
from operations in 1996 which has resulted in a deterioration in the Company's
financial position.
The recoverability of a major portion of the recorded asset amounts shown in the
accompanying balance sheet is dependent upon commencement of successful
operations of the Company, which in turn is dependent upon the Company's ability
to finance its future operations. The financial statements do not include any
adjustments relating to the recoverability and classification of recorded assets
and liability amounts which might result from the above uncertainties.
The Company has and will continue to take a number of steps to reduce its
operating losses. The Company will continue to increase its efforts in marketing
their initial public offering of the Company's shares to raise funds. Management
believes that a result of the action stated above, the Company can continue in
existence for the next twelve months;
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however, there is no assurance that such action will be consummated or will
eliminate the Company's need for additional capital.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS
27. Financial Data Schedule (for SEC use only).
4
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereto duly authorized.
INVESTMENT INCOME PROPERTIES
OF AMERICA, INC.
/s/ Fredric B. Layne
- ------------------------------ ----------------------------
(Date) Fredric B. Layne
President/CEO
5
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Investment Income Properties of America, Inc.
BALANCE SHEETS
(Unaudited)
ASSETS
Sept. 30, 1997 Dec. 31, 1996
-------------- -------------
Cash and cash equivalents $ 53,284 $ 29,660
Prepaid Expenses 1,883 --
Due from Affiliate 2,514 --
Property and equipment, net 2,554,680 9,447
Other assets
Deposits -- 25,000
Deferred offering costs 31,581 5,000
Deferred loan costs 1,029 4,115
----------- ---------
Total assets $ 2,644,971 $ 73,222
=========== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued expense $ 185,905 $ 139,132
Mortgage note, current portion 19,220 --
Notes payable to related parties 1,674,714 677,500
----------- ---------
Total current liabilities 1,879,839 816,632
Mortgage Note 2,036,846 --
Commitments and contingencies -- --
Stockholders' equity
Common stock - $.001 par value,
100,000,000 shares authorized;
265,450 shares issued and outstanding 31 1
Additional paid-in capital 98,250 22,399
Accumulated deficit (1,369,995) (765,810)
----------- ---------
Total stockholders' equity (1,271,714) (743,410)
----------- ---------
Total liabilities and stockholders' equity $ 2,644,971 $ 73,222
=========== =========
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Investment Income Properties of America, Inc.
STATEMENTS OF OPERATIONS
(Unaudited)
Nine Months Ended Three Months Ended
Sept. 30, Sept. 30,
1997 1996 1997 1996
---- ---- ---- ----
Revenue
Interest Income $ 1,129 $ 707 $ 149 $ 81
Rental Income 106,009 -- 106,009 --
Expenses
Selling, general and
administrative 607,763 398,864 219,602 44,372
--------- --------- --------- ---------
Loss from operations (500,625) (398,157) (113,444) (44,291)
Interest expense 103,201 30,683 62,984 11,116
--------- --------- --------- ---------
Loss before income taxes (603,826) (428,840) (176,428) (55,407)
Income taxes 359 -- -- --
--------- --------- --------- ---------
Net loss $(604,185) $(428,840) $(176,428) $(255,407)
========= ========= ========= =========
Weighted Average Shares
Outstanding 124,733 79,556 115,400 85,333
--------- ========= ========= =========
Net loss per share $ (4.84) $ (5.39) $ (1.53) $ (.65)
========= ========= ========= =========
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Investment Income Properties of America, Inc.
STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended
September 30,
-------------
1997 1996
---- ----
Cash flows from operating activities:
Net loss $ (604,185) $(428,840)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation expense 18,483 1,515
Amortization expense 3,086 3,086
Compensation expense from stock options 12,880 --
Stock issued in lieu of rent expense 25,881 10,500
Changes in operating assets and liabilities
(Increase) decrease in prepaid expenses (1,883) 13,017
(Increase) decrease in other assets (4,095) 308,899
Increase (decrease) in accounts payable and
accrued expenses 46,773 (57,043)
----------- ---------
Net cash used in operating activities (503,060) (148,866)
Cash flows used in investing activities:
Purchase of equipment -- (6,504)
Purchase of building (507,650) --
----------- ---------
Net cash used in investing activities (507,650) (6,504)
Cash flows from financing activities:
Proceeds from notes payable to related parties 997,214 97,500
Proceeds from issuance of common stock 37,120 --
----------- ---------
Net cash provided by financing activities 1,034,334 97,500
----------- ---------
Net increase (decrease) in cash and cash equivalents 23,624 (57,870)
Cash and cash equivalents at beginning of period 29,660 80,541
----------- ---------
Cash and cash equivalents at end of period $ 53,284 $ 22,671
=========== =========
Supplemental information:
Cash paid during the year for:
Interest $ 25,730 $ --
=========== =========
Income taxes $ 787 $ --
=========== =========
Non-cash financing activities:
Issuance of Mortgage Note to
third party in connection with
purchase of office complex $2,056,066 --
========== =========
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Investment Income Properties of America, Inc.
UNAUDITED NOTES TO FINANCIAL STATEMENTS
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements have been
prepared in accordance with the generally accepted accounting principles for
interim financial information and with the instructions to Form 10-QSB.
Accordingly, they do not include all the information and footnotes required by
generally accepted accounting principles for complete financial statements. In
the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for fair presentation have been included.
Operating results for the nine months ended September, 1997 are not necessarily
indicative of the results that may be expected for the year ended December 31,
1997.
The balance sheet at December 31, 1996 has been derived from the audited
financial statements at that date, but does not include all the information and
footnotes required by generally accepted accounting principles for complete
financial statements. For further information, refer to the audited financial
statements and footnotes thereto included in the Form 10-KSB filed by the
Company for the year ended December 31, 1996.
NOTE B - FORMATION AND OPERATIONS OF THE COMPANY
Investment Income Properties of America, Inc. (the "Company"), is a
Delaware corporation which intends to qualify as a real estate investment trust
("REIT") under the Internal Revenue Code of 1986, as amended (the "Code"). The
Company has a limited operating history. The Company has been formed to invest
primarily in existing residential and commercial properties in the Southeast and
Southwestern regions of the United States. The Company intends to seek
properties which hold potential for appreciation, including properties which may
be suitable for future conversion into condominium units. The Company presently
owns one office building located in Pompano Beach, Florida, but has not
identified any additional properties to purchase.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from
Sept. 30, 1997 10-QSB and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 53,284
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 57,681
<PP&E> 2,554,680
<DEPRECIATION> 0
<TOTAL-ASSETS> 2,644,771
<CURRENT-LIABILITIES> 1,879,839
<BONDS> 2,036,846
0
0
<COMMON> 31
<OTHER-SE> (1,271,745)
<TOTAL-LIABILITY-AND-EQUITY> 2,644,971
<SALES> 0
<TOTAL-REVENUES> 107,178
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 607,763
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 103,201
<INCOME-PRETAX> (603,826)
<INCOME-TAX> 359
<INCOME-CONTINUING> (604,185)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (604,185)
<EPS-PRIMARY> (4.84)
<EPS-DILUTED> 0
</TABLE>
