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 June 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.
240,450 shares of outstanding as of June 30, 1997
<PAGE>
INVESTMENT INCOME PROPERTIES OF AMERICA, INC.
INDEX
Part I FINANCIAL INFORMATION Page
----
Item 1 Financial Statements
Balance Sheets as of June 30, 1997
(Unaudited) and December 31, 1996.....................
Statements of Operations for the three
months and six months ended June 30, 1997
and 1996 (Unaudited)..................................
Statements of Cash Flows for the six
months ended June 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 and Reports on Form 8-K....................
Signatures..........................................................
<PAGE>
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 June 30, 1997, there were 240,450 shares outstanding of which
219,450, or 91.3% were owned by the investors and 21,000, or 8.7% 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 expensed 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 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
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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 the Six Months and Ended June 30, 1997 and 1996
For the six months ended June 30, 1997, the Company had a net loss of
$451,881 compared to a net loss of $373,433 for the same period in 1996.
Interest income increased $354 to $980 for the six months ended June 30,
1997 compared to $626 for the same period in 1996 primarily due to an increase
in cash in interest bearing accounts obtained through loans from related
parties.
Interest expense increased $23,950 to $40,217 for the six months ended
June 30, 1997 compared to $19,567 for the same period in 1996, primarily due to
interest on loans from related parties.
General and administrative costs were $412,644 for the six months ended
June 30, 1997, respectively, compared to $354,442 for same periods in 1996,
respectively.
Results of Operations for the Three Months Ended June 30, 1997 and 1996
For the three months ended June 30, 1997 the Company had a net loss of
$359,545 compared to a net loss of $55,012 for the three months ended June 30,
1996.
For the three months ended June 30, 1997, interest income increased $954
to $980 compared to $26 for the three months ending June 30, 1996. The increase
in interest income is due to increase in cash in interest bearing accounts as a
result of additional loans from related parties.
Interest expense increased $13,883 to $23,950 for the three months ended
June 30, 1997 compared to $40,067 for the period ended June 30, 1996. The
increase is primarily due to increase in loans from related parties.
Selling general and administrative expenses were $336,575 for the three
months ended June 30, 1997 compared to $44,971 for the period ended June 30,
1996. The increase is primarily due to the write-off of Deferred Offering Costs
as a result of the Company's unsuccessful public offering.
Liquidity and Capital Resources
The Company's outstanding indebtedness at June 30, 1997 totalled
$4,235,789. This amount includes approximately $2,059,132 in fixed rate
conventional mortgages, $1,585,000 unsecured notes payable to related parties
and $416,000 due to seller of property.
2
<PAGE>
At June 30, 1997, the Company had a working capital deficit of $1,709,984
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 and the purchase of the office complex.
Net cash used in operating activities was $356,971 for the six months
ended June 30, 1997 as compared to cash used in operating activities of $107,955
for the six months ended June 30, 1996. The increase in cash used in operating
activities is primarily attributable to an increase in the net loss compared to
the net loss in 1996. Net cash provided from investing activities was $504,584
for the six months ended June 30, 1997, as compared to cash used in operating
activities of $6,504 for the six months ended June, 1996. The increase in cash
used in investing activities for the six months ended June 30, 1997 was
attributable primarily to the purchase of the 950 Professional Building. Net
cash provided by financing activities was $1,323,500 for the six months ended
June 30, 1997 as compared to net cash provided by financing activities for the
six months ended June 30, 1996 of $47,500. The increase in cash provided by
financing activities is primarily attributable to additional funds from related
parties.
In May 1997, the Company raised $907,500 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.
In connection with the issuance of these notes, these investors as of June
30, 1997 were given 143,050 common stock and warrants to purchase an additional
143,050 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.
Net cash provided by financing activities increased from $522,500 for the
six months ended June 30, 1996 to $1,585,000 for the same period in 1997
primarily due to an increase in debt proceeds.
Net cash provided by financing activities increased from $522,500 for the
six months ended June 30, 1996 to $1,585,000 for the same period in 1997
primarily due to an increase in debt proceeds and offering proceeds. The
unsecured debt financing in May 1997, debt proceeds were used to finance the
Company's acquisition activity in both 1997 and 1996.
Related Party Transactions:
The Company had entered into an Advisory Agreement with Investment Income
Properties of America, Inc. ("F&P") whereby F&P will seek to obtain,
investigate, evaluate and recommend property investment opportunities for the
Company as well administrative day-to-day operations of
3
<PAGE>
the Company. The Company was able to reduce the advisor fee from 1% of total
funds raised to .25%.
As of June 30, 1997, Professional Realty and Management Services, Inc., an
affiliate of the advisor, is expected to provide property management services
for each of the Company's properties and in exchange therefor will receive a
monthly fee equal to 5% of the monthly gross revenues of the properties.
Professional Realty and Management Services, Inc. is also expected to be
responsible for the accounting and financial reporting responsibilities for each
of the separate properties acquired by the Company. The Company will reimburse
Professional Realty and Management Services, Inc. for its expenses, including
salaries and related overhead expenses, associated with providing such
accounting and financial reporting services. Each property management agreement
will have an initial term of five years and thereafter will be renewed
automatically for successive five-year terms until terminated as provided
therein or until the applicable property is sold.
The Company had entered into a property acquisition/disposition agreement
under which J&W Realty of South Florida, Inc. ("J & W") would have acted as an
exclusive real estate broker in connection with the Company's purchase and sales
of property.
As of June 30, 1997, under a Property Acquisition/Disposition Agreement
with the Company, PRMS will agree to serve as the exclusive real estate broker
in connection with both the Company's purchases and sales of properties, and in
exchange for such services, such corporation 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 PRMS'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 PRMS such amount as is necessary for
PRMS's commission on such purchase and sale to be 2% of the sale or purchase
price of the property being sold or purchased.
The accompanying financial statements have bene 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
4
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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.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS
27. Financial Data Schedule (for SEC use only).
5
<PAGE>
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.
______________________________ By: /s/ Fredric B. Layne
(Date) -------------------------
Fredric B. Layne
President/CEO
6
<PAGE>
Investment Income Properties of America, Inc.
BALANCE SHEETS
(Unaudited)
ASSETS
June 30, 1997 Dec. 31, 1996
------------- -------------
Cash and cash equivalents $ 491,605 $ 29,660
Property and equipment, net 2,571,569 9,447
Other assets
Deposits -- 25,000
Deferred offering costs 7,098 5,000
Deferred loan costs 2,057 4,115
----------- ---------
Total assets $ 3,072,329 $ 73,222
=========== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued expense $ 181,607 $ 139,132
Mortgage note, net of current portion 18,982 --
Notes payable to related parties 1,585,000 677,500
Due to seller - 950 office building 416,000 --
----------- ---------
Total current liabilities 2,201,589 816,632
Mortgage Note 2,040,150 --
Commitments and contingencies -- --
Stockholders' equity
Common stock - $.001 par value,
100,000,000 shares authorized,
240,450 and 76,525 shares
issued and outstanding 6 1
Additional paid-in capital 48,275 22,399
Accumulated deficit (1,217,691) (765,810)
----------- ---------
Total stockholders' equity (1,169,410) (743,410)
----------- ---------
Total liabilities and stockholders'
equity $ 3,072,329 $ 73,222
=========== =========
<PAGE>
Investment Income Properties of America, Inc.
STATEMENTS OF OPERATIONS
(Unaudited)
Six Months Ended Three Months Ended
June 30, June 30,
1997 1996 1997 1996
---- ---- ---- ----
Revenue
Interest Income $ 980 $ 626 $ 980 $ 26
Expenses
Selling, general and
administrative 412,644 354,492 336,575 44,971
--------- --------- --------- --------
Loss from operations (411,664) (353,866) (335,595) (44,945)
Interest expense 40,217 19,567 23,950 10,067
--------- --------- --------- --------
Loss before income taxes (451,881) (373,433) (359,545) (55,012)
Income taxes -- -- -- --
--------- --------- --------- --------
Net loss $(451,881) $(373,433) $(359,545) $(55,012)
========= ========= ========= ========
Weighted Average Shares
Outstanding 123,400 76,667 115,400 77,333
========= ========= ========= ========
Net loss per share $ (3.66) $ (4.87) $ (3.12) $ (.71)
========= ========= ========= ========
<PAGE>
Investment Income Properties of America, Inc.
STATEMENTS OF CASH FLOW
(Unaudited)
Six Months Ended
June 30,
--------
1997 1996
---- ----
Cash flows from operating activities:
Net loss $ (451,881) $(373,433)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation expense 1,594 718
Amortization expense -- 2,057
Compensation expense from stock options 12,880 --
Stock issued in lieu of rent expense 25,881 5,250
Changes in operating assets and liabilities
Decrease in prepaid expenses 25,000 13,017
(Increase) decrease in other assets (40) 304,715
Increase (decrease) in accounts payable and
accrued expenses 42,475 (60,279)
----------- ---------
Net cash used in investing activities (356,971) (107,955)
Cash flows used in investing activities:
Purchase of equipment -- (6,504)
Purchase of building (504,584) --
----------- ---------
Net cash used in operating activities (504,584) (6,504)
Cash flows from financing activities:
Proceeds from notes payable to related parties 907,500 47,500
Due to seller - 950 Office Building 416,000 --
----------- ---------
Net cash provided by financing activities 1,323,500 47,500
----------- ---------
Net increase in cash and cash equivalents 461,945 (66,959)
Cash and cash equivalents at beginning of period 29,660 80,541
----------- ---------
Cash and cash equivalents at end of period $ 491,605 $ 13,582
=========== =========
Supplemental information:
Cash paid during the year for:
Interest $ -- $ --
=========== =========
Income taxes $ -- $ --
=========== =========
Non cash financing activities:
Issuance of Mortgage Note to third party
in connection with purchase of office complex $ 2,056,066 --
=========== =========
<PAGE>
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 three months ended June 30, 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.
NOTE C - ACQUISITION OF OFFICE BUILDING
On June 30, 1997, the Company purchased a 31 unit business office complex
located in Pompano Beach, Florida. The purchase price was for $2,600,000 and was
financed through a purchase money mortgage of $2,080,000 and funds provided
through loans provided 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.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from
10-QSB June 30, 1997 and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 491,605
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 2,571,569
<DEPRECIATION> 0
<TOTAL-ASSETS> 3,072,329
<CURRENT-LIABILITIES> 2,201,589
<BONDS> 2,040,150
0
0
<COMMON> 6
<OTHER-SE> (1,169,416)
<TOTAL-LIABILITY-AND-EQUITY> 3,072,329
<SALES> 0
<TOTAL-REVENUES> 980
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 412,644
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 40,217
<INCOME-PRETAX> (451,881)
<INCOME-TAX> 0
<INCOME-CONTINUING> (451,881)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (451,881)
<EPS-PRIMARY> (.66)
<EPS-DILUTED> 0
</TABLE>
