U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C 20549
FORM 10-QSB
(Mark One)
[ X ] Quarterly Report Section 13 or 15(d) of the Securities Exchange
Act of 1934 For quarterly period ended __________June 30, 1998__________________
OR
[ ] Transition Report pursuant to Section 13 or 15(d) of the
Securities 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 of 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 90days.
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.
1,793,436 shares of outstanding stock as of June 30, 1998
---------
<PAGE>
INVESTMENT INCOME PROPERTIES OF AMERICA, INC.
---------------------------------------------
INDEX
-----
Part I FINANCIAL INFORMATION Page
- ------ --------------------- ----
Item 1 Financial Statements
Balance Sheets as of June 30, 1998
(Unaudited) and
December 31, 1997 ......................... 3
Statements of Operations for the six
Months ended June 30, 1998 And
1997 (Unaudited)........................... 4
Statements of Cash Flows for the six
Months ended June 30, 1998 And
1997 (Unaudited)........................... 5
Notes to Financial Statements (Unaudited) .... 6
Item 2 Management's Discussion and
Analysis of Financial Condition and
Results of Operations ........................ 7 - 8
Part II OTHER INFORMATION
- ------- -----------------
Item 6 Exhibits Index and Reports.................... 9
Signatures .......................................... 10
2
<PAGE>
Investment Income Properties of America, Inc.
CONDENSED BALANCE SHEETS
(Unaudited)
June 30, 1998
<TABLE>
<CAPTION>
Assets
June 30, 1998 Dec. 31, 1997
------------- -------------
<S> <C> <C>
Cash and cash equivalents $525,789 $ 153,552
Income Tax receivable 787 787
Due from affiliate 5,130 7,050
Accrued Interest 1,147 -
-------------- -------------
Total current assets 532,853 161,389
-------------- -------------
Property, plant and equipment, net 2,504,698 2,538,475
-------------- -------------
Other assets
Deposit 50,000 -
Deferred offering costs 34,949 34,949
-------------- -------------
Total Other Assets 84,949 34,949
-------------- -------------
Total assets $ 3,122,500 $ 2,734,813
============== =============
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Accounts payable and accrued expense $ 319,285 $ 302,825
Mortgage note payable-current portion 20,328 19,582
Notes payable to related parties 1,515,000 1,560,000
Note payable to affiliate 52,500 81,500
-------------- -------------
Current total liabilities 1,907,113 1,963,907
-------------- -------------
Mortgage note payable net of current portion 2,021,458 2,031,813
-------------- -------------
Commitments and contingencies - -
Stockholders' Deficiency
Common stock - $.001 par value, 100,000,000
Shares authorized,1,793,436 and 374,125 shares
Issued and outstanding 450 124
Additional paid-in-capital 1,357,610 705,936
Accumulated deficit (2,164,131) (1,966,976)
-------------- -------------
Total stockholders' deficiency (806,071) (1,260,907)
-------------- -------------
Total liabilities and stockholders' deficiency $ 3,122,500 $ 2,734,813
============== =============
</TABLE>
3
<PAGE>
Investment Income Properties of America, Inc.
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
Six Months Ended
June 30,
1998 1997
---- ----
Revenue
Rental Income $ 222,043 $ -
Expenses
Selling, general and administrative 282,496 412,644
----------- ---------
Loss from operations (60,453) (412,644)
Interest Expense 140,178 40,217
Interest Income (3,467) 980
Loss before income taxes (197,164) (451,881)
Income taxes - -
----------- ---------
Net loss $ (197,164) $(451,881)
=========== =========
Weighted average shares outstanding 1,083,781 123,400
=========== =========
Net loss per share $ (.18) $ (3.66)
=========== =========
4
<PAGE>
Investment Income Properties of America, Inc.
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30
1998 1997
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (197,164) $ (451,881)
Adjustments to reconcile net loss to net cash
Used in operating activities:
Depreciation expense 33,777 1,594
Compensation expense from stock options - 12,880
Stock issued in lieu of rent expense - 25,880
Changes in operating assets and liabilities
Increase in accrued interest (1,147) -
Decrease in prepaid expenses - 25,000
Decrease in Due from Affiliate 1,920 -
Increase in other assets - (40)
Increase in accounts payable and Accrued expenses (16,460) 42,475
------------- -------------
Net cash used in operating activities (146,154) (356,971)
------------- -------------
Cash flows used in investing activities:
Deposit on Building-Centre Place (50,000) -
Purchase of Building - (504,584)
------------- -------------
Net cash used in investing activities (50,000) (504,584)
------------- -------------
Cash flows from financing activities:
Repayment of principal on mortgage note (9,609) -
Proceeds from notes payable to related parties - 907,500
Due to seller - 950 Office Building - 416,000
Proceeds from issuance of stock 652,000 -
Repayment of note payable to related party (45,000) -
Repayment of note payable to affiliate (29,000) -
------------- -------------
Net cash provided by financing activities 568,391 1,323,500
------------- -------------
Net increase in cash and cash equivalents 372,237 461,945
Cash and cash equivalents at beginning of period 153,552 29,660
------------- -------------
Cash and cash equivalents at end of period $ 525,789 $ 491,605
Supplemental information:
Cash paid during the year for:
Interest $ 76,778 $ -
============= =============
Income taxes $ - $ -
============= =============
Non cash financing activities:
Issuance of Mortgage Note to third party
In connection with purchase of office complex $ - $ 2,056,066
</TABLE>
5
<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 six months ending June 30, 1998, are not necessarily
indicative of the results that may be expected for the year ending December 31,
1998.
The balance sheet at December 31, 1997 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, 1997.
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.
NOTE C- CONTRACTED FOR OFFICE BUILDING
On June 16, 1998, Investment Income Properties of America, Inc. (the
"Company") contracted to purchase Centre Place Professional Park, a one story
office complex consisting of three (3) one story buildings totaling 33,062
square feet, having an address of 1495, 1497 and 1499 West Forest Hill Blvd.,
West Palm Beach, Florida (the "Property"). The Company has contracted the
Property for $2,320,500. The property will be financed through a purchase money
mortgage of $1,972,425 and funds provided through loans by individuals who also
own shares in the Company. The mortgage bears interest at 7.25% and is payable
monthly and is collateralized by the property. Title to the Property will be
conveyed by fee simple warranty.
The Property consists of 29 rental suites, 25 of which are currently
leased to tenants that are engaged in a variety of businesses, including
financial services, investment banking, publishing, computer technology,
healthcare services, accounting and law. The suites provide for a combined total
of 28,240 square feet of rental area. The Company contracted the Property from a
third party, unaffiliated with the Company, that has owned the Property and
leased space thereon for the past 6 years.
In consideration of services rendered to the Company in connection
with the selection and acquisition of the Property, the Company will pay
Professional Realty and Management Services, Inc. ("PRMS"), an affiliate of the
Company, a property acquisition fee of 2% of the purchase price of the Property
or $46,410. PRMS will serve as property manager for the Property and will be
paid a monthly management fee equal to 5% of the gross revenues of the Property.
6
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION
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 performances of Office
Complexes and of Apartment Communities could differ materially from those set
forth in the forward-looking statements. Certain factors that might cause such a
difference include general economic conditions, local real estate conditions,
construction delays due to unavailability of materials, weather conditions or
other delays.
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, 1998, there were 1,793,436 outstanding shares, of
which 774,936 or 43 % were owned by the investors and 1,018,500 or 57 % were
owned by other stockholders (including certain officers and directors of the
Company).
On June 30, 1997, The Company purchased 950 Professional Building, a
three-story office complex consisting of 40,000 square feet in Pompano Beach,
Florida (the "Property"). The Company purchased the Property 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. Title to the Property was conveyed by a fee simply warranty.
The Property consists of 31 rental suites, 29 of which are currently
leased to 29 tenants that are engaged in a variety of businesses, including
financial services, investment banking, publishing, computer technology, health
care services, accounting and law. The suites provide for a combined total of
26,000 square feet of rentable area. The Company purchased the Property from a
third party, unaffiliated with the Company, who had owned the Property and
leased office space thereon for the past 28 years. The Company will use one
suite on the Property as its corporate headquarters and continue to use the
remainder of the Property as office building rental or leasing space.
In consideration for services rendered to the Company in connection
with the selection and acquisition of the Property, the Company will pay
Professional Realty and Management Services, Inc. ("PRMS"), an affiliate of the
Company, a property acquisition fee of 4% of the purchase price of the Property
or $104,000 when the equity for the acquisition of the Property is fully raised.
PRMS will serve as property manager for the Property and will be paid a monthly
management fee equal to 5% of the gross revenues of the Property.
On June 16, 1998, (the "Company") contracted to purchase Centre Place
Professional Park, a one story office complex consisting of Three (3) One Story
Buildings totaling 33,062 square feet, having an address of 1495, 1497, 1499
Forest Hill Blvd. West Palm Beach, Florida (the "Property"). The Company has
contracted the property for $2,320,500. The Property will be financed through a
purchase money mortgage of $1,972,425 and funds provided through loans by
individuals who also own shares in the Company. The Mortgage bears interest at
7.25% and is payable monthly and is collareralized by the property. Title to the
Property will be conveyed by fee simple warranty.
7
<PAGE>
The Property consisits of 29 rental suites, 25 of which are currenlty
leased to tenants engaged in a variety of business, including financial
services, investment banking, publishing computer technology, healthcare
servises, accounting and law. The suites provide for a combined total of 28,240
square feet of rental area. The Company contracted the Property from a third
party, unaffiliated with the Company, that had owned the Property and leased
space thereon for the past 6 years.
In consideration of services rendered to the Company in connection
with the selection and acquisition of the Property, the Company will pay PRMS,
an affiliate of the Company, a property acquisition fee of 2% of the purchase
price of the Property of $46,410.00. PRMS will serve as property manager for the
Property and will be paid a monthly management fee equal to 5% of the gross
revenues of the Property.
Results of Operations for the Six Months Ended June30, 1998 and 1997
For the six months ended June 30, 1998, the Company had a net loss
of $197,164 compared to a net loss of $451,881 for the same period in 1997.
Interest income increased $2,487 to $3,467 for the six months ended
June 30, 1998, compared to $980 for the same period in 1997, primarily due to an
increase in cash invested in interest bearing accounts as a result of cash flow
needs.
Interest expense increased $99,961 to $140,178 for the six months
ended June 30, 1998, compared to $40,217 for the same period in 1997, primarily
due to an increase in loans from related parties.
General and administrative expenses were $282,496 for the six months
ended June 30, 1998, compared to $412,644 for the same period in 1997, primarily
due to professional fees incurred for accounting and legal services.
Liquidity and Capital Resources
The Company's outstanding indebtedness at June 30, 1998, totaled
$3,928,571. This amount included approximately $319,000 of accounts payable,
$1,515,000 of unsecured notes payable to related parties, $52,500 of notes
payable to affiliate and a third party mortgage note payable of $2,041,786.
At June 30, 1998, the Company had a working capital deficit
$1,374,260 as compared to a working capital deficit of $1,802,518 at December
31, 1997. The decrease in the working capital deficit was primarily attributable
to decreases in loans from related parties and the note payable to the
affiliate.
Net cash used in operating activities was $146,154 for the six
months ended June 30, 1998, as compared to cash used in operating activities of
$356,971 for the six months ended June 30, 1997. The increase in cash used in
operating activities was primarily attributable to a decrease in the net loss.
Net cash used in investing activities was $50,000 for the six months ended June
30, 1998, as compared to $504,584 for the six months ended June 30, 1997. The
decrease was attributable to the fact that no purchase of a building occurred in
the six months ended June 30, 1998, only a deposit was made. Net cash provided
by financing activities was $568,391 for the six months ended June 30, 1998, as
compared to net cash provided by financing activities for the six months ended
June 30, 1997, of $1,323,500. The decrease in cash provided by financing
activities is primarily attributable to a decrease in funds borrowed from
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 1997, which has resulted in deterioration in
the Company's financial position.
8
<PAGE>
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 its initial public offering of 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.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
- ------ ------------------
The Company is not involved in any pending litigation.
Item 2. Changes in Securities.
- ------ ----------------------
There have been no materially modified changes this period.
Item 3. Defaults Upon Senior Securities.
- ------ --------------------------------
There have been no material defaults this period.
Item 4. Submission of Matters to a Vote of Security Holders.
- ------ ----------------------------------------------------
No matters were submitted to a vote of security holders this period.
Item 5. Other Information.
- ------ ------------------
No other information to report.
Item 6. Exhibits and Reports.
- ------ ---------------------
Financial Data Schedule.
9
<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 thereunto duly authorized.
INVESTMENT INCOME PROPERTIES OF
AMERICA, INC.
August 5, 1998 By:/s/ Fredric B. Layne
- -------------- -----------------------
(Date) Fredric B. Layne
President and CEO
10
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> JUN-30-1998
<CASH> 525,789
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 532,853
<PP&E> 2,504,698
<DEPRECIATION> 33,777
<TOTAL-ASSETS> 3,122,500
<CURRENT-LIABILITIES> 1,907,113
<BONDS> 0
0
0
<COMMON> 1,793,436
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 3,122,500
<SALES> 0
<TOTAL-REVENUES> 222,043
<CGS> 0
<TOTAL-COSTS> 282,496
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 140,178
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 222,043
<EPS-PRIMARY> (.18)
<EPS-DILUTED> 0
</TABLE>
