U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
|X| Annual Report under Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the fiscal year ended December 31, 1996
|_| Transition Report under 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.
---------------------------------------------
(Name of Small Business Issuer 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)
Issuer's telephone number, including area code: 954-783-2004
Securities registered under Section 12(b) of the Exchange Act: none
Securities registered under Section 12(g) of the Exchange Act: none
Check whether the Issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act during the past 12 months (or
for such shorter period that the registrant was required to file such reports),
or (2) has been subject to such filing requirements for the past 90 days.
Yes |_| No |X|
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. |_|
State issuer's revenues for its most recent fiscal year: $ 0
The market value of the voting and non-voting common equity held by
non-affiliates is $0.
(APPLICABLE ONLY TO CORPORATE REGISTRANTS)
There were 97,400 shares of the Registrant's Common Stock, par value $.001 per
share outstanding on December 31, 1997.
DOCUMENTS INCORPORATED BY REFERENCE
None.
Transitional Small Business Disclosure Format (check one): Yes |_| No |X|
<PAGE>
PART I
Item 1. Business
Overview
Investment Income Properties of America, Inc. (the "Company") was
incorporated in the State of Delaware on January 4, 1995. Initial capitalization
occurred on January 13, 1995. The business of the Company is to invest primarily
in existing residential properties in Dade, Broward and Palm Beach Counties,
Florida. The Company did not own any properties within that region as of
December 31, 1996. The complete investment objectives and policies of the
Company are described under the caption "Investment Objectives and Policies" on
pages 31 through 37 of the Company's Prospectus dated February 15, 1996 (the
"Prospectus") filed with the Securities and Exchange Commission as part of the
Company's Registration Statement on Form S-11 (Registration No. 33-95758), which
are hereby incorporated by reference.
In connection with each of its property acquisitions, the Company will
obtain a Phase I Environment Report, and such additional environmental reports
and surveys as are necessitated by such preliminary reports. Based on such
reports, the Company is not aware of any environmental situations requiring
remediation at its properties which have not been or not currently being
remediated as necessary.
As of the end of 1996, the Company did not own any properties. However,
the following is a summary of three properties the Company has considered to be
purchased during 1996.
The Company entered into an agreement on April 18, 1995 to purchase the
Northwood Terrace Apartments in Oakland Park, Florida. The original purchase
price was $3,350,000 and was subsequently amended to $3,450,000 with a closing
of May 15, 1996. The Company has paid $75,000 in deposits under the agreement.
Subsequent to May 15, 1996, the contract was terminated because the Company was
not able to raise the necessary funds to purchase the Northwood Apartments. The
$75,000 deposit was retained by the seller and expensed by the Company.
Information with respect to Northwood Terrace Apartments is hereby incorporated
by reference from page 53 through 54 of the Company's Prospectus.
The Company entered into an agreement on October 2, 1996 to purchase the
Kendale Gardens Apartments in Miami, Florida. The purchase price was $7,135,000
with a closing date of November 15, 1996. A deposit of $10,000 was required at
the time the agreement was signed. On December 17, 1996, the agreement to
purchase Kendale Garden Apartments dated October 2, 1996, was amended. The
amended agreement reduces the purchase price to $6,925,000 if purchased by
February 28, 1997. A deposit of $15,000 was required upon the execution of the
amended agreement. On February 28, 1997, the agreement to purchase Kendale
Gardens Apartments dated December 17, 1996, was amended. The amended agreement
increases the purchase price to $6,975,000, if purchased by April 30, 1997. A
deposit of $25,000 was required upon the execution of the amended agreement. On
June 5, 1997, the agreement was amended to extend the closing date to July 31,
1997. A deposit of $25,000 was required upon the execution of this amendment.
The apartment building purchase will be financed by a private placement or a
public offering of the Company's stock.
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.
1
<PAGE>
As of June 5, 1997, the Company has not closed on the property and has $175,000
in nonrefundable deposits toward the purchase.
Item 2. Properties
The Company's three real estate properties under contract are described
in Item 1, which is hereby incorporated herein by reference.
Item 3. Legal Proceedings
The Company is not involved in any pending litigation.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders in 1995.
Item 4a. Executive Officers
The following table sets forth certain information concerning the
individuals who constitute the sole executive officers of the Company:
First Became
Name Age Position an Officer
---- --- -------- ----------
Philip Layne 78 Chairman of the Board 1995
Fredric B. Layne 47 President/Treasurer 1995
CEO
Douglas I. Layne 40 Secretary 1995
Fredric B. Layne is President, Chief Executive Officer, shareholder and
Director of Building Management Services, Inc. and J & W Realty of South
Florida,Inc. These two companies and their affiliates are involved in the
acquisition and management of residential real properties. Since 1991, Mr. Layne
has held executive and/or ownership positions in several corporations involved
in the management of and investment in real estate.
Douglas I. Layne is a Secretary of Building Management Services, Inc. and
J & W Realty of South Florida, Inc. He has worked for the Company, or its
predecessors since 1991.
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters
The Company's common stock is known as common shares, $.001 par value.
On December 31, 1996, 97,400 shares of the common stock were issued and
outstanding.
2
<PAGE>
On December 31, 1996, there were 15 shareholders of common stock.
Since commencing operations on January 13, 1995, the Company made no cash
distributions to holders of its common shares. No distributions are foreseen for
the future at this time.
Item 6. Selected Financial Data
Item intentionally left blank.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The Company invests primarily in multiple dwelling residential units in
Dade, Broward and Palm Beach Counties, Florida. The Company intends to quality
as a Real Estate Investment Trust ("REIT") under the Internal Revenue Code of
1986, as amended (the "Code") for federal income tax purposes. The Company was
capitalized on January 13, 1995 and May 1995, respectively in the approximate
amount of $475,000. Changes in the Company's liquidity and capital resources
reflect the inability of management and their underwriters in the lack of sales
of shares to investors which effect the ability of the Company for periodic
acquisitions of properties by the Company. Similarly, the lack of results from
operations reflect decreases in income, and the capital base of the Company.
Liquidity and Capital Resources
There was a significant change in the Company's liquidity during the year
ended December 31, 1996. During 1996, the company was only able to sell 21,400
shares of its units to its investors bringing the total number of shares
outstanding to 97,400. The total gross proceeds from the shares sold in 1996 was
$202,500. With this additional capital, the Company's gross capitalization still
decreased from $415,662 at December 31, 1995 to $73,222 at December 31, 1996.
Shares were sold through the Company's management to enhance the financial
structure of the firm.
The Company entered into an agreement on April 18, 1995 to purchase the
Northwood Terrace Apartments in Oakland Park, Florida. The original purchase
price was $3,350,000 and was subsequently amended to $3,450,000 with a closing
of May 15, 1996. The Company has paid $75,000 in deposits under the agreement.
Subsequent to May 15, 1996, the contract was terminated because the Company was
not able to raise the necessary funds to purchase the Northwood Apartments. The
$75,000 deposit was retained by the seller and expensed by the Company.
The Company entered into an agreement on October 2, 1996 to purchase the
Kendale Gardens Apartments in Miami, Florida. The purchase price was $7,135,000
with a closing date of November 15, 1996. A deposit of $10,000 was required at
the time the agreement was signed. On December 17, 1996, the agreement to
purchase Kendale Garden Apartments dated October 2, 1996, was amended. The
amended agreement reduces the purchase price to $6,925,000 if purchased by
February 28, 1997. A deposit of $15,000 was required upon the execution of the
amended agreement. On February 28, 1997, the agreement to purchase Kendale
Gardens Apartments dated December 17, 1996, was amended. The amended agreement
increases the purchase price to $6,975,000, if purchased by April 30, 1997. A
deposit of $25,000 was required upon the execution of the amended agreement. On
June 5, 1997, the agreement was amended to extend the closing date to July 31,
1997. A deposit of $25,000 was required upon the execution of this amendment.
The apartment building purchase will be financed by a private placement or a
public offering of the Company's stock.
3
<PAGE>
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 toward the purchase.
The Company is working on additional funding by a private placement or a
public offering of the Company's Stock.
The Company intends to hold all of its properties on a totally
unleveraged basis. However, the Company will borrow in conjunction with the
purchase of properties. The full balance of the debt incurred will be repaid
through the sale of additional shares.
Cash and cash equivalents totalled $29,660 on December 31, 1996 versus
$80,541 on December 31, 1995. During the year, the Company did not distribute
any return of capital or dividends to shareholders.
While the Company is always assessing potential acquisitions, no material
negotiations, commitments or agreements to purchase additional properties
existed at year end. The Company expects to acquire new properties as additional
funds are valuable.
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 the Company's shares to raise funds. Management
believes that as a result of the action stated above, the Company can continue
in existence for the next twelve months; however, there is no assurance that
such action will be consummated or will eliminate the Company's need for
additional capital.
Results of Operations
The results of the Company's operations for the year December 31, 1996
does not include any acquisitions of properties where the Company relies on
rental income generated by the properties for its cash for the payment of these
operating expenses. As the operations of the Company were capitalized on January
13, 1995 and May 1995, respectively, an overall comparison of years ended
December 31, 1995 and December 31 1996 would not be meaningful. The decrease in
income and the increase in expenses for the year ended December 31, 1996 over
1995 primarily reflects the costs expected from a public offering of equity
securities. During 1996, the Company concluded that the expected public offering
would not be completed and therefore wrote-off these costs.
Total expenses increased to $567,299 in 1996 from $197,185 in 1995.
General and administrative expenses totalled 93% of total expenses in
1996 and 82% in 1995. These expenses represent the administrative expenses as
well as the operation of the Company's effort for the public offering of equity
securities. This percentage is expected to further decrease as the Company's
operations grow.
4
<PAGE>
The Company's other source of income is the investment of its cash and
reserves. The Company had a decrease to $1,120 in 1996 from $2,668 in 1995. The
Company believes with its efforts in marketing their initial public offering of
the Company's shares to raise funds, there will be an increase of interest
income to the Company.
Impact of Inflation.
The Company does not believe that inflation had any significant impact on
the operation of the Company in 1996. Future inflation, if any, would likely
cause increased operating expenses, but the Company believes that increases in
expenses would be more than affect by increases in rental income. Continued
inflation may also cause capital appreciation of the Company's properties over
time, as rental rates and replacement costs increase.
Item 8. Financial Statements and Supplementary Data
The Financial Statements of the Company required to be included in
this item are set forth in item ___ of this report and are hereby incorporated
herein by reference.
PART III
Item 9. Directors and Executive Officers of the Company
The information required by this item is incorporated by this reference
to the Company's Prospectus dated February 15, 1996, under the heading
"Management", pages 41 through 44.
Item 10. Security Ownership of Certain Beneficial Owners and Management
The information required by this item is incorporated by this reference
to the Company's Prospectus dated February 15, 1996, under the heading
"Principal Stockholders", pages 39 through 40.
Item 11. Certain Relationships and Related Transactions
The information required by this item is incorporated by this reference
to the Company's Prospectus dated February 15, 1996, under the heading
"Conflicts of Interest", pages 28 through 30.
Item 12 Exhibits and Financial Statement Schedules.
(a) Documents filed as part of the report
1. Financial Statements Independent Auditors Reports of Grant
Thornton LLP (included as page F-1 of this report)
Balance Sheets
December 31, 1995 and 1996 (as restated)
Statement of Operations
Years ended December 31, 1995 and 1996 (as restated)
Statements of Stockholders' Equity
Years ended December 31, 1995 and 1996 (as restated)
and the period from January 4, 1995 through December
31, 1996.
5
<PAGE>
Statements of Cash Flows
Years ended December 31, 1996 and 1995 (as restated)
and the period from January 4, 1995 through December
31,1996
Notes to Financial Statements
2. Financial Statement Schedule
All other financial statement schedules have been omitted
because they are not applicable or not required or because
the required information is included elsewhere in the
financial statements or notes thereto.
3. Exhibits
Incorporated herein by reference are the exhibits listed
under "Index to Exhibits."
6
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized this 31st day of
October 1997.
INVESTMENT INCOME PROPERTIES OF
AMERICA, INC.
By: /s/ Fredric B. Layne
-------------------------------------
Fredric B. Layne
President
By: /s/ Douglas I. Layne
-------------------------------------
Douglas I. Layne
Secretary
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signatures Capacity Date
- ---------- -------- ----
/s/ Philip Layne
- ----------------------------
Philip Layne Director, Chairman of the Board October 31, 1997
/s/ Fredric B. Layne
- ----------------------------
Fredric B. Layne Director, President & Treasurer October 31, 1997
/s/ Dr. Winston Mclean
- ----------------------------
Dr. Winston Mclean Director October 31, 1997
/s/ Ela Meireles
- ----------------------------
Ela Meireles Director October 31, 1997
- ----------------------------
Richard Hewitt III Director October 31, 1997
/s/ Annie Betancourt
- ----------------------------
Annie Betancourt Director October 31, 1997
- ----------------------------
Richard Arthur Director October 31, 1997
- ----------------------------
Pedro. J. Martinez-Fraga Director October 31, 1997
- ----------------------------
Carl R. Walston Director October 31, 1997
7
<PAGE>
INDEX TO EXHIBITS
Exhibit
Number Description
------ -----------
3.1 Amended and Restated Articles of Incorporation of the Company.
(Exhibit 3.1)*
3.2 Bylaws of the Company (Exhibit 3.2)*
10.1 Advisory Agreement between the Company and F & P Realty Advisors,
Inc.*
10.2 Form of Property Management Agreement between the Company and
Building Management Services, Inc. (Exhibit 10.2)*
10.3 Property Acquisition/Disposition Agreement between the Company and
J & W Realty of South Florida,Inc. (Incorporated by reference to
the Exhibit of the same number filed with the Commission in the
Company's registration statement on Form S-11 (Registration No.
33-95758)). This is a management contact with a company affiliated
with officers of the Company.
10.7 Registrar, Transfer Agent and Disbursement Agent Agreement between
the Company and American Stock & Transfer*
* to be filed by amendment
8
<PAGE>
REPORT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Investment Income Properties of America, Inc.
We have audited the accompanying balance sheet of Investment Income Properties
of America, Inc. as of December 31, 1995 and 1996, and the related statements of
operations, stockholders' equity and cash flows for the period from January 4,
1995 (inception) through December 31, 1996. 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 audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Investment Income Properties of
America, Inc. at December 31, 1995 and 1996, and the results of its operations
and its cash flows for the period from January 4, 1995 (inception) through
December 31, 1996, in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As shown in the financial statements,
the Company incurred a net loss of $567,691 for the years ended December 31,
1996, and as of that date, the Company's liabilities exceeded its assets by
$743,410. These factors raise substantial doubt about the Company's ability to
continue as a going concern. Management's plans in regard to these matters are
described in Note H. The financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
/s/ Grant Thornton
- ---------------------------------------
Fort Lauderdale, Florida
April 22, 1997 (except for Note B which is dated June 5,
1997 and Note I which is dated June 30, 1997)
F-1
<PAGE>
Investment Income Properties of America, Inc.
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
1995 1996
--------- ---------
<S> <C> <C>
Cash and cash equivalents (Note A) $ 80,541 $ 29,660
Prepaid expenses 13,017 --
Property and equipment of net accumulated
depreciation of $441 and $2,475 (Note A) 4,976 9,447
Other assets
Deposit (Note B) 75,000 25,000
Deferred offering costs (Notes A) 233,898 5,000
Deferred loan costs (Note A) 8,230 4,115
--------- ---------
Total assets $ 415,662 $ 73,222
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued expenses $ 138,781 $ 139,132
Notes payable to related parties (Note C) 475,000 677,500
--------- ---------
Total liabilities 613,781 816,632
Commitments and contingencies (Note B) -- --
Stockholders' equity (Notes C and D)
Common stock - $.001 par value, 100,000,000
shares authorized, 76,000 and 97,400 shares
issued and outstanding -- 1
Additional paid-in capital -- 22,399
Accumulated deficit (198,119) (765,810)
--------- ---------
Total stockholders' equity (198,119) (743,410)
--------- ---------
Total liabilities and stockholders' equity $ 415,662 $ 73,222
========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
F-2
<PAGE>
Investment Income Properties of America, Inc.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the Period From
January 4, 1995
(Inception) Through For the Year Ended
December 31, 1995 December 31, 1996
----------------- -----------------
<S> <C> <C>
Revenue
Interest income $ 2,668 $ 1,120
Expenses
Selling, general and administrative 164,286 528,254
--------- ---------
Loss From Operations (161,618) (527,134)
Interest expense 35,567 40,165
--------- ---------
Loss before income taxes (197,185) (567,299)
Income taxes (Note F) 934 392
--------- ---------
Net loss $(198,119) $(567,691)
========= =========
Loss per Common Share $ (2.70) $ (6.76)
========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE>
Investment Income Properties of America, Inc.
STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
January 4, 1995 (inception) through December 31, 1996
<TABLE>
<CAPTION>
Common Stock Paid-In Accumulated
------------ -------------------
Shares Amount Capital Deficit Total
------ ------ ------- ------- -----
<S> <C> <C> <C> <C> <C>
Balance at January 4,
1995 (inception) -- $ -- $ -- $ -- $ --
Issuance of stock
(Notes C and D) 76,000 -- -- -- --
Net loss for the period
from January 4, 1995
through December 31, 1995 -- -- -- (198,119) (198,119)
------- ------- ------- --------- --------
Balance at December 31, 1995 76,000 -- -- (198,119) (198,119)
Issuance of stock (Note C) 21,400 1 13,999 -- 1,400
Stock options granted -- -- 8,400 -- 8,400
Net loss for the year
ended December 31, 1996 -- -- -- (567,691) (567,691)
------- ------- ------- --------- --------
Balance at December 31, 1996 97,400 $ 1 $22,399 $(765,810) $(743,410)
======= ======= ======= ========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE>
Investment Income Properties of America, Inc.
STATEMENTS OF CASH FLOWS
For the Period from
January 4, 1995
<TABLE>
<CAPTION>
(Inception) Through For the Year Ended
December 31, 1995 December 31, 1996
----------------- -----------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(198,119) $(567,691)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation expense 441 2,034
Compensation expense from stock options -- 8,400
Stock issued in lieu of rent expense -- 14,000
Changes in operating assets and liabilities
Increase (decrease) in prepaid expenses (13,017) 13,017
Increase (decrease) in other assets (317,128) 283,013
Increase (decrease) in accounts payable accrued
expenses 138,781 351
--------- ---------
Net cash used in operating activities (389,042) (246,876)
Cash used in investing activities:
Purchase of equipment (5,417) (6,505)
--------- ---------
Net cash used in investing activities (5,417) (6,505)
Cash flows from financing activities:
Proceeds from notes payable to related parties 475,000 202,500
--------- ---------
Net cash provided by financing activities 475,000 202,500
--------- ---------
Net increase (decrease) in cash and cash equivalents 80,541 (50,881)
Cash and cash equivalents at beginning of period -- 80,541
--------- ---------
Cash and cash equivalents at end of period $ 80,541 $ 29,660
========= =========
Supplemental information:
Cash paid during the year for:
Interest $ -- $ --
========= =========
Income taxes $ -- $ --
========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE>
Investment Income Properties of America, Inc.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1995 and 1996
Investment Income Properties of America, Inc.
NOTES TO FINANCIAL STATEMENTS
December 31, 1995 and 1996
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
Investment Income Properties of America, Inc. (the "Company") was
incorporated on January 4, 1995. The Company was formed for the purpose
of becoming a Real Estate Investment Trust (REIT) which will invest
primarily in rental apartment buildings.
Cash and Cash Equivalents
For purposes of the statement of cash flows, the Company considers all
highly liquid debt instruments purchased with a maturity of three months
or less to be cash equivalents.
Deferred Offering Costs
At December 31, 1995, the Company has incurred costs in the amount of
$233,898 in connection with an expected public offering of equity
securities as described in Note D. During 1996, the Company concluded
that the expected public offering would not be completed and therefore
wrote-off these costs.
Deferred Loan Costs
Costs incurred in connection with the issuance of the notes payable have
been capitalized and will be amortized using the interest method over the
life of the loan (see Note C).
Fixed Assets
Fixed assets are stated at cost, less accumulated depreciation. The
Company provides for depreciation using the straight-line method over the
assets estimated useful lives.
F-6
<PAGE>
Investment Income Properties of America, Inc.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1995 and 1996
Income Taxes
The Company expects to operate as and will elect to be taxed as a real
estate investment trust under the Internal Revenue Code of 1986, as
amended (the "Code"). Generally, a real estate investment trust which
complies with the provisions of the Code and distributes at least 95% of
its taxable income to its stockholders does not pay Federal income taxes
on its distributed income. If the Company complies with the provisions of
the Code, it will also be exempt from income taxes in the State of
Florida. Accordingly, the Company does not expect to provide for Federal
or Florida income taxes on its distributed income.
(continued)
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
Use of Estimates
In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities,
the disclosure of contingent assets and liabilities at the date of the
financial statements, and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Impairment of Long-Lived Assets
The Company evaluates long-lived assets and certain intangibles held and
used for impairment whenever events or changes in circumstances indicate
that the carrying amount may not be recoverable. Impairment is recognized
when the carrying amounts of such assets and liabilities cannot be
recovered by the discounted net cash flow they will generate.
Stock Options
Options granted under the Company's Stock Option Plans are accounted for
under APB 25, "Accounting for Stock Issued to Employees," and related
interpretations. The additional
F-7
<PAGE>
Investment Income Properties of America, Inc.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1995 and 1996
disclosures required by SFAS 123 are contained in Note G. Stock options
to nonemployees are accounted for in accordance with SFAS 123.
NOTE B - COMMITMENTS
The Company is obligated to pay $12,000 in monthly installments of $1,000
and 4,000 shares of common stock upon the completion of the public
offering of its shares (see Note D) to a company as compensation for
locating a placement agent. No value has been ascribed to the shares.
The Company entered into an agreement on April 18, 1995 to purchase the
Northwood Terrace Apartments in Oakland Park, Florida. The original
purchase price was $3,350,000 and was subsequently amended to $3,400,000
with a closing of May 15, 1996. The Company had paid $75,000 in deposits
under the agreement. Subsequent to May 15, 1996, the contract was
terminated because the Company was not able to raise the necessary fund
to purchase the Northwood Apartments. The $75,000 deposit was retained by
the seller and expensed by the Company.
Earnings per share
Earnings per share are based upon the weighted average number of common
and common equivalent shares outstanding during each year. The total of
such weighted average shares was 73,333 and 84,017 for the years ended
December 31, 1995 and 1996, respectively.
(continued)
NOTE B - COMMITMENTS - Continued
The Company entered into an agreement on October 2, 1996 to purchase the
Kendale Gardens Apartments in Miami, Florida. The purchase price was
$7,135,000 with a closing date of November 15, 1996. A deposit of $10,000
was required at the time the agreement was signed. On December 17, 1996,
the agreement to purchase Kendale Gardens Apartments dated October 2,
1996 was amended. The amended agreement reduces the purchase price to
$6,925,000 if purchased by February 28, 1997. A deposit of $15,000 was
required upon the execution of the amended agreement. As of December 31,
1996, the Company has $25,000 in deposits towards the purchase. On
February 28, 1997, the agreement to purchase Kendale Gardens Apartments
dated December 17, 1996 was amended. The amended agreement increases the
purchase price to $6,975,000 if purchased by April 30, 1997. A deposit of
$25,000 was required upon the execution of the amended agreement. On June
5, 1997, the agreement was amended to extend the closing date to July 31,
1997. A deposit of $25,000
F-8
<PAGE>
Investment Income Properties of America, Inc.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1995 and 1996
was required upon the execution of this amendment. The apartment building
purchase will be financed by a private placement or a public offering of
the Company's stock.
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.
NOTE C - NOTES PAYABLE TO RELATED PARTIES
In 1995 and 1996, the Company raised $677,500 through the issuance of
notes payable to investors. These notes bear interest at the rate of 8%
per annum, with principal and accrued interest, if any, payable upon the
earlier of December 31, 1997 or upon the receipt by the Company of gross
proceeds in the aggregate amount of not less than $4,500,000 from the
public offering of the Company's securities.
(continued)
NOTE C - NOTES PAYABLE TO RELATED PARTIES - Continued
In connection with the issuance of these notes, these investors as of
December 31, 1996 were given 96,000 common stock and warrants to purchase
an additional 103,000 of common stock for $2.00 per share. The warrants
are exercisable at any time in the next three years. No value has been
ascribed to these shares or warrants.
F-9
<PAGE>
Investment Income Properties of America, Inc.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1995 and 1996
NOTE D - STOCKHOLDERS' EQUITY
The Board has authorized the filing of a registration statement relating
to an initial public offering of common stock. The net proceeds from the
issuance and sale of the common stock will be used to purchase rental
property.
NOTE E - RELATED PARTY TRANSACTIONS
The Company has entered into a management agreement with Building
Management Services, Inc. ("BMSI") whereby BMSI will manage all
properties acquired by the Company for an annual fee ranging from 3% to
10% of annual gross collected revenues generated by the properties
depending upon the nature of the property. At December 31, 1996, BMSI is
100% owned by two of the officers of the Company.
The Company has entered into an advisory agreement with F & P Realty
Advisors, Inc. ("F & P") whereby F & P will seek to obtain, investigate,
evaluate and recommend property investment opportunities for the Company
as well as administer the day-to-day operations of the Company. F & P
will receive a quarterly Asset Management Fee equal to .25% of the
original assets, defined as the gross proceeds which have been received
from time to time from the sale or sales of the shares, and will also be
reimbursed for certain direct expenses and allocable overhead incurred in
connection with its provision of services to the Company. F & P is 100%
owned by two of the stockholders/officers of the Company.
The Company has entered into a property acquisition/disposition agreement
under which J & W Realty of South Florida, Inc. ("J & W") will act as an
exclusive real estate broker in connection with the Company's purchase
and sales of property. J & W will be entitled to a fee from the Company
in an amount which is in accordance with the then current industry
standard; provided, however, that if J & W's fee on any such purchase and
sale is less than 2% of the purchase or sale price of a property being
purchased or sold by the Company, the Company will pay to J & W such
amount as is necessary for J & W's commission on such purchase or sale to
be 2% of the sale or purchase price of the property being sold or
purchased.
(continued)
F-10
<PAGE>
Investment Income Properties of America, Inc.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1995 and 1996
NOTE E - RELATED PARTY TRANSACTIONS - Continued
A principal in a law firm which provides services to the Company is also
a director and stockholder of the Company. The total fees charged in 1995
by this firm to the Company were $8,732. In 1996, he resigned as a
director, but is still a stockholder and provides legal advise on real
estate. He owns less than 5% of the issued and outstanding stock of the
Company.
A director, who is also a stockholder of the Company, provides
acquisition services to the Company. The total fees charged were $0 and
$5,000 in 1995 and 1996, respectively.
NOTE F - INCOME TAXES
As discussed in Note A, the Company expects to be exempt from Federal and
Florida income taxes for any future distributed profits provided that it
meets the required tests.
The net loss of $(198,119) for the period ended December 31, 1995, and
the net loss of $(567,691) for the year ended December 31, 1996, contain
certain organizational and start-up costs that must be capitalized and
amortized for tax purposes. No deferred taxes have been recorded for
these temporary differences or the net operating loss carryforward, due
to the Company's expected tax status as a REIT. Income tax expense is a
result of applying the applicable Federal rate to interest income earned
in the respective periods.
NOTE G - STOCK OPTIONS
The Company has granted stock options which are classified as
non-qualified, and which are not part of an Employee' Incentive Stock
Option Plan. The Company accounted for such options under APB Opinion 25
and related Interpretations. Commencing January 1, 1996, the Company
accounts for non-qualified options issued to non-employees, under SFAS
123, Accounting for Stock Based Compensation.
The exercise price of all options granted by the Company equals the
market price at the date of grant. Compensation expense of $8,400 has
been recognized in 1996.
F-11
<PAGE>
Investment Income Properties of America, Inc.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1995 and 1996
(continued)
NOTE G - STOCK OPTIONS - Continued
Had compensation cost for non-qualified options issued to employees been
determined based on the fair value of the options at the grant dates
consistent with the method of SFAS 123, the Company's net loss and loss
per share would have been changed to the pro forma amounts indicated
below.
1996 1995
---- ----
Net loss
As reported $(567,691) $(198,119)
Pro forma $(567,691) $(232,089)
Primary loss per share
As reported $ -- $ --
Pro forma $ -- $ --
The above pro forma disclosures may not be representative of the effects
on reported net income for future years as the Company may continue to
grant options to employees.
The fair value of each option grant is estimated on the date of grant
using the binomial option-pricing model with the following
weighted-average assumptions used for grants in 1995: dividend yield of
0.0 percent for all years; expected volatility of 18.91 percent in 1995;
risk-free interest rates of 5.20 percent in 1995; and expected holding
periods of 3 years in both periods. There were no options granted in
1996.
(continued)
NOTE G - STOCK OPTIONS - Continued
F-12
<PAGE>
Investment Income Properties of America, Inc.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1995 and 1996
A summary of the status of the Company's fixed stock options as of December 31,
1996 and 1995, and changes during the years ending on those dates is as follows:
<TABLE>
<CAPTION>
1996 1995
----------------------------- -----------------------------
Weighted- Weighted-
Average Average
Shares (000) Exercise Price Shares (000) Exercise Price
------------ -------------- ------------ --------------
<S> <C> <C> <C> <C>
Outstanding at beginning of
year 83,500 $ 1.91 -- $ --
Granted 20,000 2.00 83,500 1.91
Exercised -- -- -- --
Expired -- -- -- --
Forfeited -- -- -- --
-------- -------
Outstanding at end of year 103,500 1.93 83,500 1.91
======== =======
Options exercisable at end
of year 103,500 83,500
Weighted-average fair value
of options granted during
the year $ -- $ .49
</TABLE>
The following information applies to options outstanding at December 31, 1996.
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
--------------------------------------------------- -----------------------------
Range of Weighted-Average Remaining Average Weighted- Average
Exercise Prices Shares (000) Contractual Life Exercise Price Shares (000) Exercise Price
--------------- ---------------- ---------------- -------------- ------------ --------------
<S> <C> <C> <C> <C> <C>
$0 - $2.00 103,500 3.00 1.93 103,500 1.93
</TABLE>
F-13
<PAGE>
Investment Income Properties of America, Inc.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1995 and 1996
NOTE H - GOING-CONCERN
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 1995 which has resulted
in a deterioration in the Company's financial position.
(continued)
NOTE H - GOING-CONCERN - Continued
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; however,
there is no assurance that such action will be consummated or will
eliminate the Company's need for additional capital.
NOTE I - SUBSEQUENT EVENTS
On June 30, 1997, the Company purchased an office building in Pompano
Beach, Florida for $2,600,000. The purchase was financed through a
purchase money mortgage of $2,080,000 and funds provided through loans by
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 of the Company. In addition, under the purchase
agreement, the seller has the option to purchase up to $10,000,000 of the
common
F-14
<PAGE>
Investment Income Properties of America, Inc.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1995 and 1996
stock of the Company at $2.00 per share. This option can be exercised any time
within seven years from the date of purchase.
F-15
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from
10-KSB Dec. 31, 1996 and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 29,660
<SECURITIES> 1
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 29,660
<PP&E> 9,447
<DEPRECIATION> 0
<TOTAL-ASSETS> 77,222
<CURRENT-LIABILITIES> 876,632
<BONDS> 0
0
0
<COMMON> 1
<OTHER-SE> (793,411)
<TOTAL-LIABILITY-AND-EQUITY> 73,222
<SALES> 0
<TOTAL-REVENUES> 1,120
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 528,254
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 40,165
<INCOME-PRETAX> (567,299)
<INCOME-TAX> 392
<INCOME-CONTINUING> (567,691)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (567,691)
<EPS-PRIMARY> (6.76)
<EPS-DILUTED> 0
</TABLE>
