Across America Real Estate Corp. Form 10-QSB
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly period ended September 30, 2006
Commission File No. 000-50764
Across America Real Estate Corp.
(Exact Name of Small Business Issuer as specified in its charter)
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| Colorado
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20-0003432 |
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(State or other jurisdiction
of incorporation)
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(IRS Employer File Number) |
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| 1660 17th Street, Suite 450
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| Denver, Colorado
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80202 |
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| (Address of principal executive offices)
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(zip code) |
(303) 893-1003
(Registrant’s telephone number, including area code)
Check whether the issuer: (1) filed all reports required to be filed by Section 13 or 15(d) of the
Exchange Act during the past 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 þ No o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act) Yes o No þ
As of November 3, 2006, registrant had outstanding 16,036,625 shares of the registrant’s common
stock, and the aggregate market value of such shares held by non-affiliates of the registrant
(based upon the closing bid price of such shares as listed on the OTC Bulletin Board on November 3,
2006) was approximately $2,592,225.
Transitional Small Business Disclosure Format (check one): Yes o No þ
1
FORM 10-QSB
Across America Real Estate Corp.
TABLE OF CONTENTS
2
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| PART I |
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FINANCIAL INFORMATION |
References in this document to “us,” “we,” or “Company” refer to Across America Real Estate Corp.
and its subsidiaries.
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| ITEM 1. |
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FINANCIAL STATEMENTS |
ACROSS AMERICA REAL ESTATE CORP.
Condensed Consolidated Balance Sheet
(Unaudited)
September 30, 2006
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Assets |
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|
Cash and equivalents |
|
$ |
4,874,646 |
|
Escrow deposits (Note 4) |
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|
955,118 |
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Accounts receivable, net (Note 4) |
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Related party |
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|
60,478 |
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Employee advance |
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|
583 |
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Property and equipment, net of accumulated depreciation (Note 5) |
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|
31,074 |
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Construction in progress (Note 2) |
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|
2,506,843 |
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Land held for development (Note 2) |
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|
7,829,318 |
|
Current tax asset (Note 7) |
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|
242,390 |
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Deposits |
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18,583 |
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Total assets |
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$ |
16,519,033 |
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Liabilities and Shareholders’ Equity |
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Liabilities |
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Accounts payable |
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$ |
45,367 |
|
Accrued liabilities |
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|
54,798 |
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Indebtedness to related party (Note 3) |
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|
8,007,622 |
|
Note payable (Note 10) |
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2,155,304 |
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Capital lease obligation (Note 9) |
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|
10,837 |
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Security deposit |
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|
10,000 |
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Deferred tax liability (Note 7) |
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|
67,593 |
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Unearned revenue |
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|
128,183 |
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Total liabilities |
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10,479,704 |
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Shareholders’ equity (Note 6) |
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Noncontrolling interest (Note 14) |
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8,681 |
|
Convertible preferred stock, $.10 par value; 517,000 shares authorized,
517,000 shares issued and outstanding |
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|
51,700 |
|
Common stock, $.001 par value; 50,000,000 shares authorized,
16,036,625 shares issued and outstanding |
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16,037 |
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Additional paid-in-capital |
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6,314,238 |
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Retained earnings |
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(351,327 |
) |
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Total shareholders’ equity |
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6,039,329 |
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Total liabilities and shareholders’ equity |
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$ |
16,519,033 |
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See accompanying notes to condensed consolidated financial statements
3
ACROSS AMERICA REAL ESTATE CORP.
Condensed Consolidated Statements of Operations
(Unaudited)
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Three Months Ended |
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Nine Months Ended |
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September 30, |
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September 30, |
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2006 |
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2005 |
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2006 |
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2005 |
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Revenue: |
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Sales |
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$ |
— |
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$ |
848,628 |
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$ |
1,723,000 |
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$ |
848,628 |
|
Sales, related parties (Note 2) |
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5,050,000 |
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— |
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5,050,000 |
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— |
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Rental income (Note 2) |
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98,694 |
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38,300 |
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367,690 |
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80,951 |
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Management fees |
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32,725 |
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256,490 |
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59,725 |
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256,490 |
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Total revenue |
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5,181,419 |
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1,143,418 |
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7,200,415 |
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1,186,069 |
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Operating expenses: |
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Cost of Sales |
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— |
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848,613 |
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1,462,848 |
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|
848,613 |
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Cost of Sales — related parties (Note 2) |
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4,767,622 |
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— |
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4,767,622 |
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— |
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Selling, general and administrative |
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512,843 |
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183,293 |
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1,143,337 |
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429,043 |
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Total Operating expenses |
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5,280,465 |
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1,031,906 |
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7,373,807 |
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1,277,656 |
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Income/(loss) from operations |
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(99,046 |
) |
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111,512 |
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(173,392 |
) |
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(91,587 |
) |
Non-operating expense: |
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Interest Income |
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|
482 |
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— |
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|
482 |
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— |
|
Interest Expense |
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(127,915 |
) |
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(58,921 |
) |
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(363,803 |
) |
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(101,968 |
) |
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Income/(loss) before income taxes
and noncontrolling interest |
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(226,479 |
) |
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52,591 |
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(536,713 |
) |
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(193,555 |
) |
Income tax provision |
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(54,041 |
) |
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— |
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(196,439 |
) |
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— |
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Income/(loss) before noncontrolling interest |
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(172,438 |
) |
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52,591 |
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(340,274 |
) |
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(193,555 |
) |
Noncontrolling interest in income of
consolidated subsidiaries |
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|
(2,867 |
) |
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(2,498 |
) |
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(92,357 |
) |
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— |
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Net income/(loss) |
|
$ |
(175,305 |
) |
|
$ |
50,093 |
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$ |
(432,631 |
) |
|
$ |
(193,555 |
) |
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Basic and diluted income/(loss) per share |
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(0.01 |
) |
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|
0.00 |
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|
(0.03 |
) |
|
|
(0.01 |
) |
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Basic and diluted weighted average common
shares outstanding |
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16,036,625 |
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|
16,036,625 |
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|
16,036,625 |
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|
16,036,625 |
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See accompanying notes to condensed consolidated financial statements
4
ACROSS AMERICA REAL ESTATE CORP.
Consolidated Statement of Changes
September 30, 2006
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Nine Months Ended |
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September 30, |
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2006 |
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|
2005 |
|
Cash flows from operating activities: |
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Net (loss) |
|
$ |
(432,631 |
) |
|
$ |
(193,555 |
) |
Cash restricted for project development |
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|
258,818 |
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(785,668 |
) |
Adjustments to reconcile net income to net cash used by operating activities: |
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Depreciation |
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|
5,629 |
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|
966 |
|
Changes in current assets and current liabilities: |
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Construction in progress |
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(1,339,028 |
) |
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(609,439 |
) |
Real estate held for sale |
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4,855,790 |
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(2,125,656 |
) |
Land held for development |
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(2,834,900 |
) |
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(7,739,748 |
) |
Accounts receivable |
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|
44,564 |
|
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|
— |
|
Accounts payable and accrued liabilities |
|
|
(109,941 |
) |
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|
178,360 |
|
Income tax assets and liabilities |
|
|
(224,415 |
) |
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|
— |
|
Indebtedness to related party |
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|
150,000 |
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— |
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Net cash (used in) operating activities |
|
|
373,886 |
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(11,274,740 |
) |
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Cash flows from investing activities: |
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Payments for deposits |
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276 |
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|
(13,133 |
) |
Payments for property and equipment |
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(7,514 |
) |
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|
(3,322 |
) |
Issuance of notes receivable |
|
|
(489,958 |
) |
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|
(404,375 |
) |
Unearned Revenue |
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|
128,183 |
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|
— |
|
Proceeds from repayment of notes receivable |
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|
25,000 |
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|
80,000 |
|
Security deposit |
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|
— |
|
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|
— |
|
|
|
|
|
|
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|
Net cash (used in) investing activities |
|
|
(344,013 |
) |
|
|
(340,830 |
) |
|
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|
Cash flows from financing activities: |
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Distributions received from members, net |
|
|
15,846 |
|
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|
— |
|
Proceeds from sale of convertible preferred stock |
|
|
6,204,000 |
|
|
|
— |
|
Proceeds from related party loans (Note 3) |
|
|
5,488,688 |
|
|
|
8,985,247 |
|
Repayment of related party loans (Note 3) |
|
|
(6,046,546 |
) |
|
|
(2,312,432 |
) |
Proceeds from note payable (Note 10) |
|
|
2,901,598 |
|
|
|
4,415,365 |
|
Repayment of note payable (Note 10) |
|
|
(3,897,893 |
) |
|
|
— |
|
Repayment of lease obligation (Note 9) |
|
|
(1,416 |
) |
|
|
— |
|
|
|
|
|
|
|
|
Net cash provided by financing activities |
|
|
4,664,277 |
|
|
|
11,088,180 |
|
|
|
|
|
|
|
|
Net change in cash |
|
|
4,694,150 |
|
|
|
(527,390 |
) |
Cash and equivalents, beginning of period |
|
|
180,496 |
|
|
|
527,390 |
|
|
|
|
|
|
|
|
Cash and equivalents, end of period |
|
$ |
4,874,646 |
|
|
$ |
— |
|
|
|
|
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|
Supplemental disclosure of cash flow information: |
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Cash paid during the period for: |
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|
|
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Income taxes |
|
$ |
— |
|
|
$ |
— |
|
|
|
|
|
|
|
|
Interest |
|
$ |
1,155,680 |
|
|
$ |
— |
|
|
|
|
|
|
|
|
See accompanying notes to condensed consolidated financial statements
5
ACROSS AMERICA REAL ESTATE CORP.
Notes to Consolidated Financial Statements
(Unaudited)
| (1) |
|
Nature of Organization and Summary of Significant Accounting Policies |
Organization and Basis of Presentation
Across America Real Estate Corp. (“AARD” or the “Company”) was incorporated under the laws of
Colorado on April 22, 2003. The Company is a co-developer, principally as a financier, for
build-to-suit real estate development projects for retailers who sign long-term leases for use of
the property. Land acquisition and project construction operations are conducted through the
Company’s subsidiaries. The Company creates each project such that it will generate income from
the placement of the construction loan, rental income during the period in which the property is
held, and the capital appreciation of the facility upon sale. Affiliates, subsidiaries and
management of the Company will develop the construction and permanent financing for the benefit of
the Company.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of Across America Real
Estate Corp. and the following subsidiaries:
| |
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| Name of Subsidiary |
|
Ownership |
CCI Southeast, LLC (“CCISE”) |
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|
100.00 |
% |
AARD-Belle Creek, LLC (“Belle Creek”) |
|
|
100.00 |
% |
CCI Corona, LLC (“CCI Corona”) |
|
|
100.00 |
% |
AARD-Greeley-Lot 3, LLC (“Greeley”) |
|
|
100.00 |
% |
Riverdale Carwash Lot 3A, LLC (“Riverdale”) |
|
|
100.00 |
% |
Across America Real Estate Exchange, Inc. |
|
|
100.00 |
% |
Across America Financial Services, Inc. |
|
|
100.00 |
% |
Cross Country Properties II, LLC (“CCPII”) |
|
|
80.00 |
% |
AARD-Stonegate, LLC (“Stonegate”) |
|
|
51.00 |
% |
AARD-Charmar-Olive Branch, LLC (“Olive Branch”) |
|
|
51.00 |
% |
AARD-Cypress Sound, LLC (“Cypress Sound”) |
|
|
51.00 |
% |
AARD-TSD-CSK Firestone, LLC (“Firestone”) |
|
|
51.00 |
% |
South Glen Eagles Drive, LLC(“West Valley”) |
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|
51.00 |
% |
119th and Ridgeview, LLC (“Ridgeview”) |
|
|
51.00 |
% |
53rd and Baseline, LLC (“Baseline”) |
|
|
51.00 |
% |
Hwy 278 and Hwy 170, LLC (“Bluffton”) |
|
|
51.00 |
% |
State and 130th, LLC (“American Fork”) |
|
|
51.00 |
% |
Clinton Keith and Hidden Springs, LLC (“Murietta”) |
|
|
51.00 |
% |
Hwy 46 and Bluffton Pkwy, LLC (“Bluffton 46”) |
|
|
51.00 |
% |
AARD Bader Family Dollar Flat Shoals, LLC |
|
|
51.00 |
% |
AARD Westminster OP7, LLC (“Westminster”) |
|
|
51.00 |
% |
Eagle Palm I, LLC (“Eagle”) |
|
|
51.00 |
% |
AARD Econo Lube Stonegate, LLC (“Econo Lube”) |
|
|
51.00 |
% |
AARD Bader Family Dollar MLK, LLC (“MLK”) |
|
|
51.00 |
% |
L-S Corona Pointe, LLC (“L-S Corona”) |
|
|
50.01 |
% |
Cross Country Properties III, LLC (“CCPIII”) |
|
|
50.00 |
% |
All significant intercompany accounts and transactions have been eliminated in consolidation.
6
ACROSS AMERICA REAL ESTATE CORP.
Notes to Consolidated Financial Statements
(Unaudited)
| (2) |
|
Real Estate Development Projects |
Projects Sold during the Quarter Ended September 30, 2006:
Riverdale
On October 1, 2004, we entered into an arrangement with S&O Development, LLC, an unaffiliated
builder and developer of commercial property, to develop an express tunnel carwash located in
Littleton, Colorado. The parties formed a limited liability company for the development of the
project. The name of the limited liability company was Riverdale Carwash Lot3A, LLC. S&O
Development originally owned 49.9% of Riverdale Carwash Lot3A, LLC and we originally owned 50.1%.
The parties agreed to split the profits each 50% from the proceeds of the sale of the project after
all development and construction costs and interest and fee expenses are paid and settled. The
project was completed on April 23, 2005 and our total cost to build the project was $2,159,218.
On August 19, 2005, we purchased S&O Development’s ownership in Riverdale Carwash Lot 3A, LLC for
$53,641, giving us 100% ownership of the Riverdale project.
On April 23, 2005, Riverdale leased the facility to Aquatique Industries, Inc. (an affiliate under
common control) with a fifteen-year lease. Aquatique operates a Kwik Car Wash in the facility.
GDBA owned 60% of Aquatique Industries at the time the lease was executed. For the quarter ended
September 30, 2006 we have recognized $56,488 in rental income.
On September 28, 2006 Riverdale Carwash Lot 3A, LLC sold the property to Aquatique Industries, Inc.
for $2,450,000, which is included in the accompanying condensed, consolidated financial statements as Sales, Related Party.
Stonegate
On May 20, 2005, we (through our wholly-owned subsidiary, AARD-Stonegate, LLC) entered into an
agreement with Castle Brae Development LLC (“Castle”), an unaffiliated builder and developer of
commercial property. Under the agreement, Castle developed a car wash facility located in Parker,
Colorado.
In August 2005, we amended the Operating Agreement of AARD-Stonegate, LLC, giving Castle 49%
membership interest in AARD-Stonegate, LLC, retaining 51% membership interest for ourselves. Under
the terms of the amended agreement, profits from the proceeds of the sale of the project will be
divided between the partners after all development and construction costs and interest and fee
expenses are paid and settled. The project was completed in December 2005 for a total construction
cost of $2,608,404.
On December 31, 2005, Stonegate leased the facility to Aquatique Industries, Inc. (an affiliate
under common control) with a fifteen-year lease. Aquatique operates a Kwik Car Wash in the
facility. GDBA owned 60% of Aquatique Industries at the time the lease was executed. For the
quarter ended September 30, 2006 we have recognized $42,206 in rental income.
7
ACROSS AMERICA REAL ESTATE CORP.
Notes to Consolidated Financial Statements
(Unaudited)
On September 28, 2006 AARD Stonegate LLC sold the property to Aquatique Industries, Inc. for
$2,600,000, which is included in the accompanying condensed, consolidated financial statements as Sales, Related Parties.
Current Development Projects:
Cypress Sound
On March 22, 2005, we entered into an arrangement with Mr. Daniel S. Harper (“Harper”), an
unaffiliated builder and developer of commercial property. We and Mr. Harper intend to develop and
construct a six unit, three-story condominium project located in Orlando, Florida. The parties
have formed a limited liability company for the development of the identified property. The name
of
the limited liability company is AARD-Cypress Sound LLC (“Cypress Sound”). Harper owns 49% of
Cypress Sound and we own 51%. All profits from the proceeds of the sale of the project will be
divided between the partners after all development and construction costs and interest and fee
expenses are paid and settled.
Ridgeview
On May 20, 2005, the Company entered into an arrangement with Automotive Development Group, LLC
(“ADG”), an unaffiliated builder and developer of commercial property. The Company and ADG intend
to develop a car wash and lube facility located in Olathe, Kansas. The parties have formed a
limited liability company for the development of the identified property. The name of the limited
liability company is 119th and Ridgeview LLC (“Ridgeview”). ADG owns 49% of the LLC and
AARD owns 51% of the LLC. All profits from the proceeds of the sale of the project will be divided
between the partners after all development and construction costs and interest and fee expenses are
paid and settled.
Bluffton 278
On June 14, 2005, we (through our subsidiary, Hwy 278 & Hwy 170, LLC, “Bluffton 278”) entered into
an arrangement with Automotive Development Group, LLC (“ADG”), an unaffiliated builder and
developer of Grease Monkey International automotive stores. We intend to develop a Grease Monkey
located in Bluffton, South Carolina. ADG owns 49% of the LLC and AARD owns 51% of the LLC. All
profits from the proceeds of the sale of the project will be divided between the partners after all
development and construction costs and interest and fee expenses are paid and settled.
8
ACROSS AMERICA REAL ESTATE CORP.
Notes to Consolidated Financial Statements
(Unaudited)
American Fork
On June 14, 2005, we (through our subsidiary, State & 130th, LLC, “American Fork”)
entered into an arrangement with Automotive Development Group, LLC (“ADG”), an unaffiliated builder
and developer of Grease Monkey International automotive stores. We intend to develop a Grease
Monkey located in American Fork, Utah. ADG owns 49% of the LLC and AARD owns 51% of the LLC. All
profits from the proceeds of the sale of the project will be divided between the partners after all
development and construction costs and interest and fee expenses are paid and settled.
Laveen
On June 14, 2005, we (through our subsidiary, 53rd and Baseline, LLC, “Laveen”) entered
into an arrangement with Automotive Development Group, LLC (“ADG”), an unaffiliated builder and
developer of Grease Monkey International automotive stores. We intend to develop a Grease Monkey
located in Laveen, Arizona. ADG owns 49% of the LLC and AARD owns 51% of the LLC. All profits
from the proceeds of the sale of the project will be divided between the partners after all
development and construction costs and interest and fee expenses are paid and settled.
Bluffton 46
On April 1, 2006, we (through our subsidiary, Hwy 46 and Bluffton Pkwy, LLC (“Bluffton 46”) , LLC,
“Bluffton 46”) entered into an arrangement with Automotive Development Group, LLC (“ADG”), an
unaffiliated builder and developer of Grease Monkey International automotive stores. We intend to
develop a Grease Monkey located in Bluffton, South Carolina. ADG owns 49% of the LLC and AARD owns
51% of the LLC. All profits from the proceeds of the sale of the project will be divided between
the partners after all development and construction costs and interest and fee expenses are paid
and settled.
West Valley
On November 21, 2005, we (through our subsidiary, South Glen Eagles Drive, LLC (“West Valley”)
entered into an arrangement with Automotive Development Group, LLC (“ADG”), an unaffiliated builder
and developer of Grease Monkey International automotive stores. We intend to develop a Grease
Monkey located in West Valley, Utah. ADG owns 49% of the LLC and AARD owns 51% of the LLC. All
profits from the proceeds of the sale of the project will be divided between the partners after all
development and construction costs and interest and fee expenses are paid and settled.
AARD Stonegate Econolube
On October 25, 2005 we (through our subsidiary, AARD Stonegate Econolube, LLC) entered into an
arrangement with Charmar Properties, an unaffiliated developer of commercial property. We intend
to develop an Econolube located in Parker, CO. Charmar Properties owns 49% of the LLC and AARD
owns 51% of the LLC. All profits from the proceeds of the sale of the project will be divided
between the partners after all development.
9
ACROSS AMERICA REAL ESTATE CORP.
Notes to Consolidated Financial Statements
(Unaudited)
AARD Westminster OP7
On July 11, 2006, we through our subsidiary, AARD Westminster OP7 (“Westminster OP7”) entered into
an arrangement with Echo Sierra Enterprises, Inc., and NOI Four, LLC to purchase and finish a
partially developed project located in Westminster, CO with leases in place for Starbucks
Corporation and Floyd’s Barbershops. The project, located in Westminster, CO, was approximately
90% completed and was approximately 75% leased when we purchased it and we intend to complete
development of the project, lease the remainder of the building and sell it to investors. AARD
owns 51% of the LLC and Echo Sierra Enterprises and NOI Four each own 24.5% of the LLC. All
profits from the proceeds of the sale of the project will be divided between the partners after all
development costs and interest and fee expenses are paid and settled.
| (3) |
|
Related Party Transactions |
On November 26, 2004 we entered into a three-year “Agreement to Fund” our real estate projects with
GDBA Investments, LLLP (“GDBA”), our largest shareholder. We are currently dependent on this
relationship and would be unable to fund any projects if we lose our current funding commitment
from GDBA. In addition, our senior credit facility with Vectra Bank Colorado, which is renewable
annually, has been guaranteed by GDBA Investments and its principals. Given the early stage of our
company, it is unlikely that we could renew our senior credit facility without the continuation of
these guarantees.
On September 27, 2006, we completed a $10 million private placement with BOCO Investments, LLC
consisting of 250,000 shares of Series A Convertible Preferred Stock at $12.00 per share and $7
million in Senior Subordinated Debt, $3.5 million of which was drawn at closing and $3.5 million of
which has a revolving feature and can be drawn as needed. Additionally Joseph Zimlich, BOCO
Investments, LLC’s CEO purchased 17,000 shares of Series A Convertible Preferred Stock at $12.00
per share in his own name.
On September 27, 2006, simultaneous to the BOCO Investment private placement, GDBA Investments
replaced the Agreement to Fund with a new investment structure to mirror the BOCO investment that
also included 250,000 shares of Series A Convertible Preferred Stock at $12.00 per share, $7
million in Senior Subordinated Debt, $3.5 million of which was drawn at closing and $3.5 million of
which has a revolving feature and can be drawn as needed.
The Series A Convertible Preferred Stock issued under these transactions pays a 5% annual dividend
on the Original Issue Price of $12.00, payable quarterly and is convertible to common stock at a
$3.00 conversion price. The Senior Subordinated Notes mature on September 28, 2009 and carry an
interest rate equal to the higher of 11% or the 90 day average of the 10 year U.S. Treasury Note
plus 650 basis points. The Revolving Notes mature on September 28, 2009 and carry an interest rate
equal to the higher of 11% or the 90 day average of the 10 year U.S. Treasury Note plus 650 basis
points.
10
ACROSS AMERICA REAL ESTATE CORP.
Notes to Consolidated Financial Statements
(Unaudited)
Our intention is to draw equal investments from GDBA and BOCO, so with the additional capital
infusion from BOCO, on September 28, 2006 we paid down $3,812,056 in principal and $1,155,680 in
accrued interest to GDBA Investments.
Our Subordinated Debt Balances on September 30, 2006 were:
| |
|
|
|
|
|
|
|
|
| |
|
GDBA |
|
|
BOCO |
|
Senior Subordinated Note |
|
$ |
3,500,000 |
|
|
$ |
3,500,000 |
|
Subordinated Revolving Note |
|
$ |
507,622 |
|
|
$ |
500,000 |
|
|
|
|
|
|
|
|
Total |
|
$ |
4,007,622 |
|
|
$ |
4,000,000 |
|
|
|
|
|
|
|
|
| (4) |
|
Notes Receivable and Development Deposits |
During the course of acquiring properties for development, Across America, on behalf of its
subsidiaries and development partners, typically is required to provide capital for earnest money
deposits that may or may not be refundable in addition to investing in entitlements for properties
before the actual land purchase. Because these activities represent a risk of our capital in the
event the land purchase is not completed, it is our policy to require our development partners to
personally sign promissory notes to Across America Real Estate Corp. for all proceeds expended
before land is purchased. Once the land has been purchased and can collateralize the capital
invested by us, the promissory note is cancelled. AARD had $955,118 in earnest money deposits
outstanding at September 30, 2006. These deposits were
collateralized by promissory notes from our development partners.
| (5) |
|
Property and Equipment |
The Company’s property and equipment consisted of the following at September 30, 2006:
| |
|
|
|
|
Equipment |
|
$ |
20,443 |
|
Furniture and fixtures |
|
|
6,270 |
|
Computers and related equipment |
|
|
12,477 |
|
|
|
|
|
|
|
|
39,190 |
|
Less accumulated depreciation |
|
|
(8,116 |
) |
|
|
|
|
|
|
$ |
31,074 |
|
|
|
|
|
Depreciation expense totaled $5,960 and $966 for the nine months ended September 30, 2006 and
September 30, 2005 respectively.
11
ACROSS AMERICA REAL ESTATE CORP.
Notes to Consolidated Financial Statements
(Unaudited)
Preferred Stock
The Board of Directors authorized 1,000,000 shares of preferred stock with a par value of $.10, in series and to fix the
number of shares in such series as well as the designation, relative rights, powers, preferences,
restrictions, and limitations of all such series.
On September 27, 2006, the Company designated and issued 517,000 preferred shares as Series A Convertible Preferred Stock. Each share pays a 5% annual dividend on the Original Issue Price of $12.00, payable quarterly and is convertible to common stock at a $3.00 conversion price.
Common Stock
As of September 30, 2006 the Company has 50,000,000 shares of common stock that are authorized,
16,036,625 shares that are issued and outstanding at a par value of $.001 per share.
12
ACROSS AMERICA REAL ESTATE CORP.
Notes to Consolidated Financial Statements
(Unaudited)
The provision for income taxes for the nine months ended September 30, 2006, consists of the
following:
| |
|
|
|
|
Current: |
|
|
|
|
Federal |
|
$ |
(232,715 |
) |
State |
|
|
(31,317 |
) |
|
|
|
|
|
|
|
(264,032 |
) |
Deferred: |
|
|
|
|
Federal |
|
|
59,719 |
|
State |
|
|
7,874 |
|
|
|
|
|
|
|
|
67,593 |
|
|
|
|
|
Total income tax provision |
|
$ |
(196,439 |
) |
|
|
|
|
The reconciliation of the income tax expense computed at U.S. federal statutory rates to the
provision for income taxes is as follows:
| |
|
|
|
|
Tax at US federal statutory rates |
|
$ |
(213,832 |
) |
State income taxes, net of federal |
|
|
(28,416 |
) |
|
|
|
|
|
|
|
(242,248 |
) |
Change in beginning deferred balance |
|
|
45,809 |
|
|
|
|
|
Total income tax benefit |
|
$ |
(196,439 |
) |
|
|
|
|
Deferred income taxes reflect the net tax effects of temporary differences between the
carrying amounts of assets and liabilities for financial reporting purposes and the amounts
used for income tax purposes. Significant components of the Company’s deferred tax assets
and liabilities are as follows:
| |
|
|
|
|
Deferred tax assets: |
|
|
|
|
Deferred revenue |
|
$ |
109,432 |
|
Prepaid expense |
|
|
3,160 |
|
Depreciation |
|
|
2,201 |
|
Deferred tax liability: |
|
|
|
|
Revenue |
|
|
(77,030 |
) |
Capital gains |
|
|
(52,724 |
) |
Prepaid expense |
|
|
(52,632 |
) |
|
|
|
|
Net deferred income tax liability |
|
$ |
(67,593 |
) |
|
|
|
|
As of September 30, 2006, no valuation allowance has been provided based on the Company’s
assessment of the future realizability of certain deferred tax assets.
| (8) |
|
Operating Lease Commitments |
Lessee
The Company entered into an office lease agreement on October 28, 2005, which commenced November 1,
2005 and expires December 31, 2006. The lease payment is $4,146 per month.
Combined future minimum lease payments under the leases are as follows:
| |
|
|
|
|
| December 31, |
|
|
|
|
2006 |
|
$ |
12,438 |
|
13
ACROSS AMERICA REAL ESTATE CORP.
Notes to Consolidated Financial Statements
(Unaudited)
| (9) |
|
Capital Lease Obligations |
The Company entered into a capital equipment lease on October 4, 2005. The lease commenced on
October 4, 2005 and expires September 26, 2010. The lease payment is $231 per month.
Future minimum lease payments under the lease are as follows:
| |
|
|
|
|
| December 31, |
|
|
|
|
2006 |
|
$ |
693 |
|
2007 |
|
|
2,772 |
|
2008 |
|
|
2,772 |
|
2009 |
|
|
2,772 |
|
2010 |
|
|
2,079 |
|
|
|
|
|
|
|
$ |
11,088 |
|
Less imputed interest |
|
|
251 |
|
|
|
|
|
|
|
$ |
10,837 |
|
|
|
|
|
| (10) |
|
Senior Credit Facilities |
Vectra Bank Colorado:
On April 25, 2005, we received a $10,000,000 financing commitment under a Credit Agreement from
Vectra Bank of Colorado (“Vectra Bank”). This commitment permits us to fund construction notes for
built-to-suit real estate projects for national and regional chain retailers. The financing is
facilitated through a series of promissory notes. Each note is issued for individual projects
under the facility and must be underwritten and approved by Vectra Bank and has a term of 12 months
with one (1) allowable extension not to exceed 6 months subject to approval. Interest is funded
from an interest reserve established with each construction loan. Each note under the facility is
for an amount, as determined by Vectra Bank, not to exceed the lesser of 75% of the appraised value
of the real property under the approved appraisal for the project or 75% of the project costs.
Principal on each note is due at maturity, with no prepayment penalty. Vectra Bank retains a First
Deed of Trust on each property financed and the facility has the personal guarantees of GDBA and
its owners.
On August 3, 2006 we executed a First Amendment to our Credit Agreement with Vectra Bank extending
the expiration date of the facility to July 21, 2007, which is annually renewable. The terms and
conditions of each construction note issued under the facility remain unchanged, and any
construction issued prior to the expiration date of the Credit Agreement, will survive the
expiration of the facility and will be subject to its individual term as outlined in the Credit
Agreement.
As of September 30, 2006, we had one outstanding note under this facility with a maximum principal
amount of $1,245,000 and a maturity date of August 25, 2007. As of September 30, 2006, this note
had an outstanding principal amount of $607,580 and total accrued interest of $34.
14
ACROSS AMERICA REAL ESTATE CORP.
Notes to Consolidated Financial Statements
(Unaudited)
Academy Bank:
On September 7, 2006 we took out interest only loan with Academy Bank for $1,540,000 to finance 80%
of the purchase of our AARD Westminster OP7 project. The note has a two year maturity and will
come due September 7, 2008.
As of September 30, 2006 our total outstanding principal due to our Senior lenders and our annual
schedule of repayment is as follows:
| |
|
|
|
|
| December 31, |
|
|
|
|
2006 |
|
$ |
-0- |
|
2007 |
|
$ |
607,580 |
|
2008 |
|
$ |
1,547,724 |
|
|
|
|
|
|
|
$ |
2,155,304 |
|
|
|
|
|
| (11) |
|
Concentration of Credit Risk for Cash |
The Company has concentrated its credit risk for cash by maintaining deposits in financial
institutions, which may at times exceed the amounts covered by insurance provided by the Federal
Deposit Insurance Corporation (“FDIC”). The loss that would have resulted from that risk totaled
$4,714,892 at September 30, 2006, for the excess of the deposit liabilities reported by the
financial institution over the amount that would have been covered by FDIC. The Company has not
experienced any losses in such accounts and believes it is not exposed to any significant credit
risk to cash.
| (12) |
|
Variable Compensation Plan |
The variable compensation plan is designed to reward the senior management of AARD based upon the
growth and profitability of the Company. The variable compensation pool is calculated by taking
income after all expenses but before taxes. The income before taxes is then differentiated into
two components; a base component and a growth component.
The base component is an amount equal to the income before taxes and variable compensation for the
prior year. The growth component is calculated by subtracting the base component from the current
year’s income before taxes and variable compensation. The variable compensation pool is calculated
by multiplying the base component by 8% and the growth component by 15% and adding the two figures
together.
15
ACROSS AMERICA REAL ESTATE CORP.
Notes to Consolidated Financial Statements
(Unaudited)
| (13) |
|
Capitalized Interest and Interest Expense |
For the period ended September 30, 2006 the Company has recognized $127,915 interest expense that
is not related to capitalized projects and currently has $950,076 additional capitalized interest
expense that is included in either Construction in Progress or Property Held for Sale on the
balance sheet September 30, 2006, with the exception of projects that were sold during the year,
which would have included the capitalized interest amount in our Cost of Sales.
| (14) |
|
Noncontrolling Interests |
Following is a summary of the noncontrolling interests in the equity of the Company’s subsidiaries.
The Company establishes a subsidiary for each real estate project. Ownership in the subsidiaries is
allocated between the Company and the co-developer/contractor.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
Earnings |
|
|
|
|
| |
|
|
|
|
|
Earnings allocated |
|
|
disbursed/accrued |
|
|
|
|
| |
|
Balance |
|
|
to Noncontrolling |
|
|
for Noncontrolling |
|
|
Balance |
|
| Noncontrolling Interest |
|
January 1, 2006 |
|
|
Interest |
|
|
Interest |
|
|
September 30, 2006 |
|
Firestone |
|
$ |
0 |
|
|
$ |
-106,477 |
|
|
$ |
106,477 |
|
|
$ |
0 |
|
Cypress |
|
|
4,594 |
|
|
|
0 |
|
|
|
0 |
|
|
|
4,594 |
|
Stonegate |
|
|
-9,843 |
|
|
|
2,515 |
|
|
|
-937 |
|
|
|
-8,265 |
|
Bluffton |
|
|
478 |
|
|
|
2,024 |
|
|
|
|
|
|
|
2,502 |
|
Bluffton 46 |
|
|
0 |
|
|
|
60 |
|
|
|
|
|
|
|
60 |
|
Laveen |
|
|
0 |
|
|
|
298 |
|
|
|
|
|
|
|
298 |
|
West Valley |
|
|
0 |
|
|
|
298 |
|
|
|
|
|
|
|
298 |
|
American Fork |
|
|
269 |
|
|
|
8,925 |
|
|
|
|
|
|
|
9,194 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
-4,502 |
|
|
$ |
-92,357 |
|
|
$ |
105,540 |
|
|
$ |
8,681 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (15) |
|
Statement of Cash Flows Reclassification from Prior Year |
On December 31, 2005 we reclassified several line items in our Statement of Cash Flows related to
our projects from Cash Flows from Investing Activities to Cash Flows from Operating Activities to
better represent these activities as those of our core business rather than investments made by the
company. As such, we have changed the presentation of the Statement of Cash Flows for the nine
months ended September 30, 2005 in the current filing from our filing a year ago to better
represent the comparability for the two periods. This reclassification does not impact the overall
financial statements.
| (16) |
|
Executive Employment Arrangement |
Under our employment arrangement with Ms. Schmitt, she will be paid a salary of $235,000 per annum, plus a one-time bonus of $80,000, payable by the end of the first quarter of 2007. She will also receive a stock option to acquire 250,000 shares at the then-current market price with a four year vesting, with 62,500 options vesting each year on the anniversary of her employment. Annually, thereafter, 50,000 to 200,000 options will
be granted based upon performance, with a target of 100,000 options at 100% of the plan.
16
|
|
|
| ITEM 2. |
|
MANAGEMENT’S DISCUSSION AND ANALYSIS AND PLAN OF OPERATION |
The following discussion of our financial condition and results of operations should be read in
conjunction with, and is qualified in its entirety by, the consolidated financial statements and
notes thereto included in, Item 1 in this Quarterly Report on Form 10-QSB. This item contains
forward-looking statements that involve risks and uncertainties. Actual results may differ
materially from those indicated in such forward-looking statements.
Forward-Looking Statements
This Quarterly Report on Form 10-QSB and the documents incorporated herein by reference contain
forward-looking statements that have been made pursuant to the provisions of the Private Securities
Litigation Reform Act of 1995. Such forward-looking statements are based on current expectations,
estimates, and projections about our industry, management beliefs, and certain assumptions made by
our management. Words such as “anticipates”, “expects”, “intends”, “plans”, “believes”, “seeks”,
“estimates”, variations of such words, and similar expressions are intended to identify such
forward-looking statements. These statements are not guarantees of future performance and are
subject to certain risks, uncertainties, and assumptions that are difficult to predict; therefore,
actual results may differ materially from those expressed or forecasted in any such forward-looking
statements. Unless required by law, we undertake no obligation to update publicly any
forward-looking statements, whether as a result of new information, future events, or otherwise.
However, readers should carefully review the risk factors set forth herein and in other reports and
documents that we file from time to time with the Securities and Exchange Commission, particularly
the Report on Form 10-SB, and future Annual Reports on Form 10-KSB and any Current Reports on Form
8-K.
Risk Factors
You should carefully consider the risks and uncertainties described below; and all of the other
information included in this document. Any of the following risks could materially adversely affect
our business, financial condition or operating results and could negatively impact the value of
your investment.
WHILE WE HAVE GENERATED A MODEST PROFIT IN OUR LAST TWO FISCAL YEARS, WE WERE UNPROFITABLE IN THE
MOST RECENT FISCAL QUARTER. THERE IS NO GUARANTEE THAT WE WILL CONTINUE TO BE PROFITABLE.
Our revenues for the fiscal year ended December 31, 2005 were $7,951,962. We had net income of
$77,666 for the fiscal year ended December 31, 2005. Our revenues for the fiscal year ended
December 31, 2004 were $1,787,922. We had net income of $25,686 for the fiscal year ended December
31, 2004. However, for the nine months ended September 30, 2006, we had an operating loss of
$173,392, which included an operating loss of $74,351 for the six months ended June 30, 2006 and an
operating loss of $99,046 for the three months ended September 30, 2006. Although we have had a
modest profit for the past two fiscal years, we were unprofitable in our most recent fiscal
quarter. We cannot say whether we will be able to achieve sustained profitability. We have only
completed several transactions, so it continues to be difficult for us to accurately forecast our
quarterly and annual revenue. However, we use our forecasted revenue to establish our expense
budget. Most of our expenses are fixed in the short term or incurred in advance of anticipated
revenue. As a result, we may not be able to decrease our expenses in a timely manner to offset any
revenue shortfall. We attempt to keep revenues in line with expenses but cannot guarantee that we
will be able to do so.
17
WE WILL NEED ADDITIONAL FINANCING IN THE FUTURE BUT CANNOT GUARANTEE THAT IT WILL BE AVAILABLE TO
US.
In order to expand our business, we will continue to need additional capital. To date, we have been
successful in obtaining capital for our projects, but we cannot guarantee that additional capital
will be available at all or under sufficient terms and conditions for us to utilize it. Because we
have an ongoing need for capital, we may experience a lack of liquidity in our future operations.
We expect that we will need additional financing of some type, which we do not now possess, to
fully develop our operations. We expect to rely principally upon our ability to raise additional
financing, the success of which cannot be guaranteed. To the extent that we experience a
substantial lack of liquidity, our development in accordance with our proposed plan may be delayed
or indefinitely postponed, which would have a materially adverse impact on our operations and the
investors’ investment.
AS A COMPANY WITH LIMITED OPERATING HISTORY, WE ARE INHERENTLY A RISKY INVESTMENT. OUR OPERATIONS
ARE SUBJECT TO OUR ABILITY TO FINANCE REAL ESTATE PROJECTS.
Because we are a company with a limited history, our operations, which consist of real estate
financing of built-to-suit projects for specific national retailers, must be considered an
extremely risky business, subject to numerous risks. Our operations will depend, among other
things, upon our ability to finance real estate projects and for those projects to be sold.
Further, there is the possibility that our proposed operations will not generate income sufficient
to meet operating expenses or will generate income and capital appreciation, if any, at rates lower
than those anticipated or necessary to sustain the investment. Our operations may be affected by
many factors, some of which are beyond our control. Any of these problems, or a combination
thereof, could have a materially adverse effect on our viability as an entity.
WE HAVE A HEAVY RELIANCE ON OUR CURRENT FUNDING COMMITMENT WITH OUR LARGEST SHAREHOLDERS
We are currently dependant on our relationship with GDBA Investments, LLLP, (“GDBA”) and BOCO
Investments,LLC,(“BOCO”) our largest shareholders, through their respective equity investments and
revolving loans We would be unable to fund any projects if we lose our current funding commitments
from GDBA and BOCO. In addition, our senior credit facility with Vectra Bank Colorado, which is
renewable annually, has been guaranteed by GDBA Investments and its principals. Given the early
stage of our company, it is unlikely that we could renew our senior credit facility without the
continuation of these guarantees.
18
WE DO NOT HAVE A LONG HISTORY OF BEING ABLE TO SELL PROPERTIES AT A PROFIT
We have only been in business since 2003. We do not have a significant track record and may be
unable to sell properties upon completion. We may be forced to sell properties at a loss.
Furthermore, in order to sell properties for a profit, we may be forced to hold properties for
longer periods that we plan, which may require the need for additional financing sources. Any of
these conditions would likely result in reduced operating profits and could likely strain current
funding agreements.
THE MANNER IN WHICH WE FINANCE OUR PROJECTS CREATES THE POSSIBILITY OF A CONFLICT OF INTEREST.
We fund our projects with construction financing obtained through the efforts of our management and
largest shareholders, GDBA and BOCO. This arrangement could create a conflict of interest with
respect to such financings. However, there may be an inherent conflict of interest in the
arrangement until such time as we might seek such financings on a competitive basis.
INTENSE COMPETITION IN OUR MARKET COULD PREVENT US FROM DEVELOPING REVENUE AND PREVENT US FROM
ACHIEVING ANNUAL PROFITABILITY.
We provide a defined service to finance real estate projects. The barriers to entry are not
significant. Our service could be rendered noncompetitive or obsolete. Competition from larger and
more established companies is a significant threat and expected to increase. Most of the companies
with which we compete and expect to compete have far greater capital resources, and many of them
have substantially greater experience in real estate development. Our ability to compete
effectively may be adversely affected by the ability of these competitors to devote greater
resources than we can.
OUR SUCCESS WILL BE DEPENDENT UPON OUR MANAGEMENT’S EFFORTS.
Our success will be dependent upon the decision making of our directors and executive officers.
These individuals intend to commit as much time as necessary to our business, but this commitment
is no assurance of success. The loss of any or all of these individuals, particularly Ms. Ann L.
Schmitt, our President and CEO, could have a material, adverse impact on our operations. We have no
written employment agreements with any officers and directors, including Ms Schmitt. We have not
obtained key man life insurance on the lives of any of these individuals.
19
OUR STOCK PRICE MAY BE VOLATILE, AND YOU MAY NOT BE ABLE TO RESELL YOUR SHARES AT OR ABOVE THE
PUBLIC SALE PRICE.
There has been, and continues to be, a limited public market for our common stock. Our common stock
trades on the NASD Bulletin Board. However, an active trading market for our shares has not, and
may never develop or be sustained. If you purchase shares of common stock, you may not be able to
resell those shares at or above the initial price you paid. The market price of our common stock
may fluctuate significantly in response to numerous factors, some of which are beyond our control,
including the following:
| * |
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actual or anticipated fluctuations in our operating results; |
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| * |
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changes in financial estimates by securities analysts or our failure to perform in line with such
estimates; |
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| * |
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changes in market valuations of other real estate oriented companies, particularly those that
market services such as ours; |
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| * |
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announcements by us or our competitors of significant innovations, acquisitions, strategic
partnerships, joint ventures or capital commitments; |
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| * |
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introduction of technologies or product enhancements that reduce the need for our services; |
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| * |
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the loss of one or more key customers; and |
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| * |
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departures of key personnel. |
Further, we cannot assure that an investor will be able to liquidate his investment without
considerable delay, if at all. The factors which we have discussed in this document may have a
significant impact on the market price of our common stock. It is also possible that the relatively
low price of our common stock may keep many brokerage firms from engaging in transactions in our
common stock.
As restrictions on resale end, the market price of our stock could drop significantly if the
holders of restricted shares sell them or are perceived by the market as intending to sell them.
BUYING A LOW-PRICED PENNY STOCK SUCH AS OURS IS RISKY AND SPECULATIVE.
Our shares are defined as a penny stock under the Securities and Exchange Act of 1934, and rules of
the Commission. The Exchange Act and such penny stock rules generally impose additional sales
practice and disclosure requirements on broker-dealers who sell our securities to persons other
than certain accredited investors who are, generally, institutions with assets in excess of
$5,000,000 or individuals with net worth in excess of $1,000,000 or annual income exceeding
$200,000, or $300,000 jointly with spouse, or in transactions not recommended by the broker-dealer.
For transactions covered by the penny stock rules, a broker-dealer must make a suitability
determination for each purchaser and receive the purchaser’s written agreement prior to the sale.
In addition, the broker-dealer must make certain mandated disclosures in penny stock transactions,
including the actual sale or purchase price and actual bid and offer quotations, the compensation
to be received by the broker-dealer and certain associated persons, and deliver certain disclosures
required by the SEC. Consequently, the penny stock rules may affect the ability of broker-dealers
to make a market in or trade our common stock and may also affect your ability to sell any of our
shares you may own in the public markets.
20
WE DO NOT EXPECT TO PAY DIVIDENDS ON COMMON STOCK
We have not paid any cash dividends with respect to our common stock, and it is unlikely that we
will pay any dividends on our common stock in the foreseeable future. Earnings, if any, that we may
realize will be retained in the business for further development and expansion.
Overview and History
Across America Real Estate Corp. was incorporated under the laws of the State of Colorado on April
22, 2003.
In 2003, we completed a registered offering of our common shares under the provisions of the
Colorado securities laws and under an exemption from the federal securities laws. We raised a
total of $34,325 in this offering.
On September 28, 2006, we completed a $20 million dollar funding. BOCO Investments, LLC, a private
Colorado limited liability company, agreed to provide us with new funding through a $7 million
subordinated debt vehicle and a $3 million preferred convertible equity. Simultaneously, GDBA
Investments, LLLP, has agreed to restructure its $10 million in subordinated debt to mirror the
structure of the BOCO Investments, LLC contribution, including $3 million preferred convertible
equity.
Our principal business address is 1660 17th Street, Suite 450, Denver, Colorado 80202.
We are in the business of financing and developing build-to-suit real estate projects for specific
retailers who sign long-term leases for use of the property. We create each project such that it
will generate income from the placement of the construction loan, rental income during the period
in which the property is held, and capital appreciation upon sale of the facility. Our affiliates,
subsidiaries and management develop the construction and permanent financing for our benefit.
We have not been subject to any bankruptcy, receivership or similar proceeding.
Results of Operations
The following discussion involves our results of operations for the quarters ending September 30,
2006 and September 30, 2005.
21
Our revenues for the quarter ended September 30, 2006 were $5,181,419 compared to revenues for the
quarter ended September 30, 2005 of $1,143,418. For the quarter ended September 30, 2006, the
company recognized $5,050,000 in revenue through a related party sale of its Riverdale and
Stonegate properties to Aquatique Industries, Inc., a company controlled by GDBA, one of our
largest shareholders Rental income for the quarter ended September 30, 2006 was $98,694 compared
to $38,300 for the quarter ended September 30, 2005. Management fees were $32,725 for the quarter
ended September 30, 2006 and were $256,490 for the quarter ended September 30, 2005.
Project sales for the nine months ended September 30, 2006 were $6,773,000, of which $5,050,000
were sales to a related party. Project sales for the nine months ended September 20, 2005 were
$848,628. Rental income for the nine months ended September 30, 2006 was $367,690 compared to
$80,951 for the nine months ended September 30, 2005. This increase was due to a longer that
anticipated holding period for the Stonegate and Riverdale properties. Management fees for the
nine months ended September 30, 2006 were $59,725 and were $256,490 for the nine months ended
September 30, 2005 due to a large number of projects entered into in the third quarter of 2005.
We recognize cost of sales on projects during the period in which they are sold. Cost of sales for
the quarter ended September 30, 2006 were $4,767,622 compared to $848,613 for the quarter ended
September 30, 2005. Cost of sales for the nine months ended September 30, 2006 were $6,230,470
compared to $848,613 for the nine months ended September 30, 2005. Gross margin for the nine
months ended September 30, 2006 was 8.0%, substantially lower than our target gross margin due to a
slight loss on our Stonegate project. Our gross margin for the nine months ended September 30,
2005 was zero because our only sale was vacant property sold at our cost.
Selling, general and administrative costs were $512,843 for the quarter ended September 30, 2006,
compared to $183,293 for the quarter ended September 30, 2005. Selling, general and administrative
costs were $1,143,337 for the nine months ended September 30, 2006 compared to $429,043 for the
nine months ended September 30, 2005. These year-over-year increases were attributable to the
substantial increase in staff over the past year in addition to increased sales and marketing
activity to generate additional projects. We anticipate these costs will continue to increase as
we continue to grow our business activities going forward.
We had a net loss of $175,305 for the three months ended September 30, 2006 compared to a net
profit of $50,093 for the three months ended September 30, 2005. We had a net loss of $432,631 for
the nine months ended September 30, 2006 compared to a net loss of $193,555 for the nine months
ended September 30, 2005. The increased losses in each year over year period reflect higher
revenues, which have been offset by increased operating costs. Much of the increase in operating
costs can be attributed to the increased number of projects currently under development.
Liquidity and Capital Resources
Our balance sheet on September 30, 2006 improved substantially from the prior reporting period due
to our private placement and the infusion of $6,204,000 in Convertible Preferred Equity. Our cash
balance on September 30, 2006 was $4,874,646 which was larger than anticipated due to timing issues
related to the closing of our financing on September 28, 2006 and two land purchases which closed
subsequent to the quarter end.
22
We decreased our net cash used in operating activities and net cash provided by financing
activities substantially for the nine months ended September 30, 2006 compared to the nine months
ended September 30, 2005. These changes are largely due to a fewer land purchases and less
construction activity when comparing the periods year over year. Management believes that this
decrease is largely due to timing issues related to specific project delays and is not generally
representative of the activity we anticipate over the next several quarters. While net cash
provide by financing decreased year over year, the components that make up our financing had a
significant shift with the replacement of existing debt with equity.
Management continues to assess the Company’s capital resources in relation to its ability to fund
continued operations on an ongoing basis. As such, management may seek to access the capital
markets to raise additional capital through the issuance of additional equity, debt or a
combination of both in order to fund the operations and continued growth of the Company.
Recently Issued Accounting Pronouncements
In December 2004, the Financial Accounting Standards Board issued FASB Statement No. 123R, Share
Based Payment, which requires all companies to treat the fair value of stock options granted to
employees as an expense. As a result of this standard, effective for periods beginning after
January 1, 2006, we and other companies are required to record a compensation expense equal to the
fair value of each stock option granted. We are currently assessing our valuation options allowed
in this standard. This change in accounting standards reduces the attractiveness of granting stock
options because of the additional expense associated with these grants, which would negatively
impact our results of operations. And while we do not currently have an employee stock option
plan, stoc options are in important employee recruitment and retention tool, and we may not be able
to attract and retain key personnel without such a program. Accordingly, even though we have not
quatified the dollar amount of this standard at this time, the result would have a negative impact
on our earnings starting with the accounting period beginning January 1, 2006 should we pursue any
form of stock option plan. We do not expect the adoption of any recently issued accounting
pronouncements to have a significant impact on our net results of operations, financial position,
or cash flows.
Seasonality
Our revenues are not impacted by seasonal demands for our products or services.
Critical Accounting Policies
The preparation of consolidated financial statements in conformity with accounting principles
generally accepted in the United States of America requires us to make a number of estimates and
assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements. Such estimates and assumptions
affect the reported amounts of revenues and expenses during the reporting period. On an ongoing
basis, we evaluate estimates and assumptions based upon historical experience and various other
factors and circumstances. We believe our estimates and assumptions are reasonable in the
circumstances; however, actual results may differ from these estimates under different future
conditions.
23
We believe that the estimates and assumptions that are most important to the portrayal of our
financial condition and results of operations, in that they require subjective or complex
judgments, form the basis for the accounting policies deemed to be most critical to us. These
relate to bad debts, impairment of intangible assets and long lived assets, contractual adjustments
to revenue, and contingencies and litigation. We believe estimates and assumptions related to
these critical accounting policies are appropriate under the circumstances; however, should future
events or occurrences result in unanticipated consequences, there could be a material impact on our
future financial conditions or results of operations.
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| ITEM 3. |
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CONTROLS AND PROCEDURES |
As of the end of the period covered by this report, based on an evaluation of our disclosure
controls and procedures (as defined in Rules 13a -15(e) and 15(d)-15(e) under the Exchange Act),
each our Chief Executive Officer and the Chief Financial Officer has concluded that our disclosure
controls and procedures are effective to ensure that information required to be disclosed by us in
our Exchange Act reports is recorded, processed, summarized, and reported within the applicable
time periods specified by the SEC’s rules and forms.
There were no changes in our internal controls over financial reporting that occurred during our
most recent fiscal quarter that have materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting.
24
|
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| PART II. |
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OTHER INFORMATION |
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| ITEM 1. |
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LEGAL PROCEEDINGS |
There are no legal proceedings, to which we are a party, which could have a material adverse effect
on our business, financial condition or operating results.
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| ITEM 2. |
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CHANGES IN SECURITIES |
On September 28, 2006, we completed a $20 million dollar funding. BOCO Investments, LLC, a private
Colorado limited liability company, agreed to provide us with new funding through a $7 million
subordinated debt vehicle and a $3 million preferred convertible equity. Simultaneously, GDBA
Investments, LLLP, has agreed to restructure its $10 million in subordinated debt to mirror the
structure of the BOCO Investments, LLC contribution, including $3 million preferred convertible
equity.
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| ITEM 3. |
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DEFAULTS UPON SENIOR SECURITIES |
None
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| ITEM 4. |
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SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS |
During our annual shareholder meeting held October 26, 2006 G. Brent Backman and Eric Balzer were
re-elected and Ann L. Schmitt and Joseph C. Zimlich were newly elected to our Board of Directors.
Alexander V. Lagerborg and Daniel J. Wilhelm completed their terms on the Board of Directors on
October 26, 2006. In addition, we approved an amendment to our Articles of Incorporation to
permit the adoption of shareholder resolutions by less than unanimous consent;, We also approved
and ratified our 2006 Incentive Compensation Plan. Finally, we approved and ratified the
appointment of Cordovano and Honeck, P.C. as our independent auditors for the fiscal year ending
December 31, 2006. All votes in favor of these actions were greater than a majority of the total
issued and outstanding votes entitled to vote on each item under consideration.
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| ITEM 5. |
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OTHER INFORMATION |
Departure of Principal Officer
Effective July 3, 2006, Mr. Charles J. Berling resigned from his position and employment at our
Company. As of August 7, 2006 we have not appointed a replacement for Mr. Berling.
Departure of Principal Officer; Appointment of New Principal Officer
Effective August 7, 2006, Ms. Ann L. Schmitt has been elected by our Board of Directors as the new
President and Chief Executive Officer. She succeeds Mr. Alexander V. Lagerborg, who subsequently
resigned from Across America Real Estate Corp on October 13, 2006.
Most recently, Ms. Schmitt was President of Aimbridge Lending, a private company and the country’s
second largest auto loan originator and processing company for small to midsized financial
institutions, serving 16 major U.S. markets. Prior to that, she led global risk solutions and
management at MasterCard International. Ms. Schmitt has also had senior leadership positions with
Citibank, US Bank, and Dove Consulting.
Under our employment arrangement with Ms. Schmitt, she will be paid a salary of $235,000 per annum,
plus a one-time bonus of $80,000, payable by the end of the first quarter of 2007. She
will also receive a stock option to acquire 250,000 shares at the then-current market price with a
four year vesting, with 62,500 options vesting each year on the anniversary of her employment.
Annually, thereafter, 50,000 to 200,000 options will be granted based upon performance, with a
target of 100,000 options at 100% of the plan.
She will also participate in our Company health and dental plan and life and disability insurance
program. Finally, she will receive monthly parking and a health club membership.
25
During our annual shareholder meeting held October 26, 2006 G. Brent Backman and Eric Balzer were
re-elected and Ann L. Schmitt and Joseph C. Zimlich were newly elected to our Board of Directors.
Alexander V. Lagerborg and Daniel J. Wilhelm completed their terms on the Board of Directors on
October 26, 2006.
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| ITEM 6. |
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EXHIBITS AND REPORTS ON FORM 8-K |
Exhibits
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21 |
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List of Subsidiaries |
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31.1 |
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Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/15(d)-14(a) |
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31.2 |
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Certification of Chief Financial Officer pursuant to Rule 13a-14(a)/15(d)-14(a) |
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32.1 |
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Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
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32.2 |
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Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
Reports on Form 8-K
We filed the following reports under cover of Form 8K for the fiscal quarter ended September 30,
2006: June 8, 2006, relating to the resignation of an officer; April 26, 2006, relating to Form FD
Disclosure; and April 12, 2006, relating to the sale of an asset.
26
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has dully
caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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ACROSS AMERICA REAL ESTATE CORP.
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| Dated: November 9, 2006 |
By: |
/s/ Ann L. Schmitt
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Ann L. Schmitt |
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President, Chief Executive Officer, |
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| Dated: November 9, 2006 |
By: |
/s/ James W Creamer III
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James W Creamer III |
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Treasurer, Chief Financial Officer |
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27
EXHIBIT INDEX
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| Exhibit |
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| No. |
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Description |
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21 |
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List of Subsidiaries |
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31.1 |
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Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/15(d)-14(a) |
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31.2 |
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Certification of Chief Financial Officer pursuant to Rule 13a-14(a)/15(d)-14(a) |
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32.1 |
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Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
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32.2 |
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Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
28