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 June
30, 2006
Commission
File No. 000-50764
Across
America Real Estate Corp.
(Exact
Name of Small Business Issuer as specified in its charter)
|
Colorado
|
20-0003432
|
|
( State
or other jurisdiction
|
(IRS
Employer File Number)
|
|
of
incorporation)
|
1660
17th
Street,
Suite 450
Denver,
Colorado 80202
(Address
of principal executive offices) (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
[X] No [ ]
Indicate
by check mark whether the registrant is a shell company (as
defined in Rule
12b-2 of the Exchange Act) Yes [ ] No [X]
As
of
August 7, 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 August 7, 2006)
was approximately
$2,328,456.
Transitional
Small Business Disclosure Format (check one): Yes [ ] No
[X]
FORM
10-QSB
INDEX
|
Page
No.
|
||
|
Item
1. Financial Statements:
|
||
|
Consolidated
Balance Sheet - June 30, 2006
|
4
|
|
|
Consolidated
Statements of Operations -
Quarters
Ended
June 30, 2006 and 2005 and
SixMonths
ended June 30, 2006 and
2005
|
5
|
|
|
Consolidated
Statements of Cash Flows -
Six
Months Ended June 30, 2006 and 2005
|
6
|
|
|
Notes
to Condensed Consolidated Financial Statements
|
7
|
|
|
Item
2. Management's Discussion and Analysis or Plan of
Operations
|
17
|
|
|
Item
3. Controls and Procedures
|
23
|
|
|
PART
II: OTHER INFORMATION
|
||
|
Item
1.
Legal Proceedings
|
24
|
|
|
Item
2.
Unregistered Sales of Equity Securities and Use of
Proceeds
|
24
|
|
|
Item
3.
Defaults Upon Senior Securities
|
16
|
|
|
Item
4.
Submission of Matters to a Vote of Security Holders
|
24
|
|
|
Item
5.
Other Information
|
24
|
|
|
Item
6.
Exhibits
|
24
|
|
|
SIGNATURES
|
25
|
PART
I
FINANCIAL INFORMATION
References
in this document to "us," "we," or "Company" refer to Across
America Real Estate
Corp. and its subsidiaries.
ITEM
1.
FINANCIAL STATEMENTS
3
|
Across
America Real Estate Corp
|
||||
|
Consolidated
Balance Sheet
|
||||
|
(Unaudited)
|
||||
|
June
30, 2006
|
||||
|
Assets
|
||||
|
Cash
|
$
|
116,736
|
||
|
Restricted
cash
|
148,137
|
|||
|
Deposits
held by affiliates (Note 4)
|
560,478
|
|||
|
Accounts
Receivable:
|
||||
|
Related party (Note 2)
|
136,125
|
|||
|
Employee advance
|
916
|
|||
|
Property
and equipment, net of accumulated depreciation (Note
5)
|
29,518
|
|||
|
Real
estate held for sale (Note 2)
|
4,686,980
|
|||
|
Construction
in progress (Note 2)
|
1,713,157
|
|||
|
Land
held for development (Note 2)
|
5,948,395
|
|||
|
Current
tax asset (Note 7)
|
111,114
|
|||
|
Deferred
tax asset (Note 7)
|
4,708
|
|||
|
Deposits
|
64,129
|
|||
|
Total
assets
|
13,520,393
|
|||
|
Liabilities
and Shareholders' Equity
|
||||
|
Liabilities
|
||||
|
Accounts payable
|
$
|
13,656
|
||
|
Accrued liabilities
|
61,916
|
|||
|
Indebtedness to related party (Note 3)
|
10,292,121
|
|||
|
Note payable (Note 10)
|
2,968,490
|
|||
|
Capital lease obligation (Note 8)
|
11,448
|
|||
|
Security deposit
|
10,000
|
|||
|
Unearned revenue
|
128,183
|
|||
|
Total
liabilities
|
13,485,814
|
|||
|
Commitments
(Note 9)
|
-
|
|||
|
Shareholders'
equity
|
||||
|
Noncontrolling interest (Note 14)
|
3,292
|
|||
|
Preferred stock, $.10 par value; 1,000,000 shares
authorized,
|
||||
|
-0- shares issued and outstanding
|
-
|
|||
|
Common stock, $.001 par value; 50,000,000 shares
authorized,
|
||||
|
16,036,625 shares issued and outstanding
|
16,037
|
|||
|
Additional paid-in-capital
|
161,938
|
|||
|
Retained earnings
|
(146,688
|
)
|
||
|
Total
shareholders' equity
|
34,579
|
|||
|
Total
liabilities and shareholders' equity
|
$
|
13,520,393
|
||
See accompanying notes to condensed consolidated financial statements
4
|
Across
America Real Estate Corp
|
|||||||||||||
|
Consolidated
Statements of Operations
|
|||||||||||||
|
(Unaudited)
|
|||||||||||||
|
Three
Months Ended
|
|
Six
Months Ended
|
|
||||||||||
|
|
|
June
30,
|
|
June
30,
|
|||||||||
|
2006
|
2005
|
2006
|
2005
|
||||||||||
|
Revenue:
|
|||||||||||||
|
Sales
|
$
|
-
|
$
|
-
|
$
|
1,723,000
|
$
|
-
|
|||||
|
Rental
income from related party (Note 3)
|
143,917
|
42,651
|
268,995
|
42,651
|
|||||||||
|
Management
fees
|
-
|
-
|
27,000
|
-
|
|||||||||
|
Total
revenue
|
143,917
|
42,651
|
2,018,995
|
42,651
|
|||||||||
|
Operating
expenses:
|
|||||||||||||
|
Cost
of
Sales
|
-
|
-
|
1,462,852
|
-
|
|||||||||
|
Selling,
general and administrative
|
348,639
|
165,368
|
630,494
|
245,750
|
|||||||||
|
Total
Operating expenses
|
348,639
|
165,368
|
2,093,346
|
245,750
|
|||||||||
|
Loss
from operations
|
(204,722
|
)
|
(122,717
|
)
|
(74,351
|
)
|
(203,099
|
)
|
|||||
|
Non-operating
expense:
|
|||||||||||||
|
Interest
Expense
|
(142,568
|
)
|
(34,861
|
)
|
(235,886
|
)
|
(43,047
|
)
|
|||||
|
Loss
before income taxes and
noncontrolling
interest
|
(347,290
|
)
|
(157,578
|
)
|
(310,237
|
)
|
(246,146
|
)
|
|||||
|
|
|
||||||||||||
|
Income
tax benefit
|
123,367
|
142,398
|
|||||||||||
|
Loss
before noncontrolling interest
|
(223,923
|
)
|
(157,578
|
)
|
(167,839
|
)
|
(246,146
|
)
|
|||||
|
|
|||||||||||||
|
Noncontrolling
interest in income of consolidated
subsidiaries
|
10,611
|
583
|
(89,490
|
)
|
2,498
|
||||||||
|
Net
loss
|
$
|
(213,312
|
)
|
$
|
(156,995
|
)
|
$
|
(257,329
|
)
|
$
|
(243,648
|
)
|
|
|
Basic
and diluted loss per share
|
$
|
(0.01
|
)
|
$ |
(0.01
|
)
|
$ |
(0.02
|
)
|
$ |
(0.02
|
)
|
|
|
|
|||||||||||||
|
Basic
and diluted weighted average common shares
outstanding
|
16,036,625
|
16,036,625
|
16,036,625
|
16,036,625
|
|||||||||
See
accompanying notes to condensed
consolidated financial statements
5
|
Across
America Real Estate Corp.
|
|||||||
|
Statements
of Cash Flows
|
|||||||
|
(Unaudited)
|
|||||||
|
Six
Months Ended
|
|||||||
|
June
30,
|
|||||||
|
2006
|
2005
|
||||||
|
Cash
flows from operating activities:
|
|||||||
|
Net
loss
|
$
|
(257,329
|
)
|
$
|
(243,648
|
)
|
|
|
Cash
restricted for project development
|
110,681
|
(550,352
|
)
|
||||
|
Adjustments
to reconcile net income to net cash used by
operating
activities:
|
|||||||
|
Depreciation
|
3,613
|
521
|
|||||
|
Changes in current assets and current liabilities:
|
|||||||
|
Construction
in
progress
|
(545,342
|
)
|
854,730
|
||||
|
Real
estate held for sale
|
168,810
|
(2,022,546
|
)
|
||||
|
Land
held for development
|
(953,977
|
)
|
(6,891,544
|
)
|
|||
|
Accounts
receivable
|
(31,416
|
)
|
—
|
||||
|
Accounts
payable and accrued liabilities
|
(131,872
|
)
|
38,084
|
||||
|
Income
tax assets and liabilities
|
(165,440
|
)
|
—
|
||||
|
Indebtedness
to
related party
|
150,000
|
—
|
|||||
|
Net
cash used in operating activities
|
(1,652,272
|
)
|
(8,814,755
|
)
|
|||
|
Cash
flows from investing activities:
|
|||||||
|
Payments
for
deposits
|
(45,270
|
)
|
(10,082
|
)
|
|||
|
Payments
for
property and equipment
|
(3,942
|
)
|
—
|
||||
|
Issuance
of
notes receivable
|
(80,318
|
)
|
—
|
||||
|
Unearned
revenue
|
128,183
|
—
|
|||||
|
Proceeds
from
repayment of notes receivable
|
10,000
|
80,000
|
|||||
|
Net
cash provided by investing activities
|
8,653
|
69,918
|
|||||
|
Cash
flows from financing activities:
|
|||||||
|
Distributions
received from members, net
|
37,132
|
—
|
|||||
|
Proceeds
from
related party loans (Note 3)
|
2,805,452
|
8,366,081
|
|||||
|
Repayment
of
related party loans (Note 3)
|
(1,078,811
|
)
|
(1,215,042
|
)
|
|||
|
Proceeds
from
note payable (Note 3)
|
746,294
|
1,231,042
|
|||||
|
Repayment
of
note payable (Note 3)
|
(929,403
|
)
|
—
|
||||
|
Repayment
of
lease obligation
|
(805
|
)
|
—
|
||||
|
Net
cash provided by financing activities
|
1,579,859
|
8,382,081
|
|||||
|
Net
change in cash
|
(63,760
|
)
|
(362,756
|
)
|
|||
|
Cash,
beginning of period
|
180,496
|
527,390
|
|||||
|
Cash,
end of period
|
$
|
116,736
|
$
|
164,634
|
|||
|
Supplemental
disclosure of cash flow information:
|
|||||||
|
Cash
paid during the period for:
|
|||||||
|
Income
taxes
|
$
|
27,921
|
$
|
1,000
|
|||
|
Interest
|
$
|
225,181
|
$
|
—
|
|||
See
accompanying notes to condensed
consolidated financial statements
6
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:
|
Name
of Subsidiary
|
Ownership
|
|
CCI
Southeast, LLC ("CCISE")
|
100.00%
|
|
AARD-Belle
Creek, LLC (“Belle Creek")
|
100.00%
|
|
CCI
Corona, LLC ("CCI Corona")
|
100.00%
|
|
Eagle
Palm I, LLC ("Eagle")
|
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")
|
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
Econo Lube Stonegate, LLC
|
51.00%
|
|
AARD
Bader Family Dollar MLK, LLC
|
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.
7
ACROSS
AMERICA REAL ESTATE CORP.
Notes
to
Consolidated Financial Statements
(Unaudited)
(2) Real
Estate Development Projects
Projects
Currently being Developed or Held For Sale as of
June 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.
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 (see
Note
3). 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
June 30, 2006 we have recognized $77,276 in rental
income.
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.
On
December 31, 2005, Stonegate leased the facility
to Aquatique Industries, Inc.
(an affiliate under common control) with a fifteen-year
lease (see Note 3).
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 June 30,
2006 we have recognized $66,641 in rental income
and a receivable in the amount
of $111,069.
8
ACROSS
AMERICA REAL ESTATE CORP.
Notes
to
Consolidated Financial Statements
(Unaudited)
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.
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.
9
ACROSS
AMERICA REAL ESTATE CORP.
Notes
to
Consolidated Financial Statements
(Unaudited)
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 .
(3) Related
Party Transactions
Office
Lease
The
Company signed a noncancellable operating lease to
rent office space from GDBA,
its majority shareholder. The term of the lease commenced
June 1, 2003 and
expired December 31, 2003. The Company exercised
an option to extend the lease
through December 31, 2004 on the same terms. Payments
required under the
operating lease are $250 per month. Future minimum
rental payments required
under the lease total $4,750. As of June 30, 2006,
the Company owed the
shareholder $4,750 for unpaid lease payments. This
balance is included in the
accompanying consolidated financial statements as
“Indebtedness to related
party”.
10
ACROSS
AMERICA REAL ESTATE CORP.
Notes
to
Consolidated Financial Statements
(Unaudited)
Agreement
to Fund
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.
We
utilized capital from GDBA to fund our project growth
through the second quarter
of 2006. The amount we borrowed throughout the quarter
fluctuated as we borrowed
to fund new projects and repaid principal and interest
on properties we sold. As
of June 30, 2006 we owed GDBA $9,416,961 in principal
and accrued interest of
$875,160.
In
the
first six months of 2006, we received $2,805,451
in loans for our construction
projects under our loan agreement with GDBA.
We repaid a total of $1,078,811
during this period to this shareholder. In
the first six months of 2005, we
received $8,366,081 in loans for our construction
projects under our loan
agreement with GDBA. We repaid a total of
$1,215,042 during this period to this
shareholder.
(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 $560,478 in earnest money deposits outstanding
at June 30, 2006. These
deposits were held by affiliates and all were collateralized
by promissory notes
from our development partners.
|
(5)
|
Property
and Equipment
|
The
Company's property and equipment consisted of the
following at June 30, 2006:
|
Equipment
|
$
|
20,443
|
||
|
Furniture
and fixtures
|
5,938
|
|||
|
Computers
and related equipment
|
9,255
|
|||
|
Less
accumulated depreciation
|
(6,118
|
)
|
||
|
$
|
29,518
|
|||
Depreciation
expense totaled $3,613 and $521 for the six months
ended June 30, 2006 and June
30, 2005 respectively.
11
ACROSS
AMERICA REAL ESTATE CORP.
Notes
to
Consolidated Financial Statements
(Unaudited)
(6) Shareholders’
Equity
Preferred
Stock
The
Board
of Directors is authorized to issue shares of preferred
stock 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.
Common
Stock
As
of
June 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.
(7) Income
Taxes
The
provision for income taxes for the six months ended
June 30, 2006, consists of
the following:
|
Current:
|
||||
|
Federal
|
$
|
(118,731
|
)
|
|
|
State
|
(18,959
|
)
|
||
|
(137,690
|
)
|
|||
|
Deferred:
|
||||
|
Federal
|
(4,060
|
)
|
||
|
State
|
(648
|
)
|
||
|
(4,708
|
)
|
|||
|
Total
income tax provision
|
$
|
(142,398
|
)
|
|
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
|
$
|
(95,814
|
)
|
|
|
State
income taxes, net of federal
|
(15,300
|
)
|
||
|
(111,114
|
)
|
|||
|
Change
in beginning deferred balance
|
(31,284
|
)
|
||
|
Total
income tax benefit
|
$
|
(142,398
|
)
|
12
ACROSS
AMERICA REAL ESTATE CORP.
Notes
to
Consolidated Financial Statements
(Unaudited)
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
|
$
|
42,955
|
||
|
Deferred
tax liability:
|
||||
|
Depreciation
|
(33,747
|
)
|
||
|
Prepaid
expense
|
(4,500
|
)
|
||
|
Net
deferred income tax asset
|
$
|
4,708
|
||
As
of June 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
|
$24,876
|
Lessor
The
Company, as 100% owner of Riverdale Lot 3A, LLC,
receives rental income from an
affiliate from its property held for sale in the
amount of $19,479 per month.
The agreement commenced April 23, 2005 and expires
April 22, 2020 or upon sale
of the property. The Company, as 51% owner of AARD-Stonegate
LLC, receives
rental income from its held-for-sale property in
the amount of $22,214 per
month. The agreement commenced December 31, 2005
and expires December 30, 2020
or upon sale of the property.
Future
minimum rental incomes from property held for sale
are as follows:
December
31,
|
2006
|
$
133,284
|
|
2007
|
500,314
|
|
2008
|
500,314
|
|
2009
|
500,314
|
|
2010
|
500,314
|
$2,134,540
There
is
no allowance made as of June 30, 2006 for uncollectible
rent as the Company
believes all rents to be collectible.
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
|
$
1,386
|
|
2007
|
2,772
|
|
2008
|
2,772
|
|
2009
|
2,772
|
|
2010
|
2,079
|
| $11,781 |
| Less imputed interest | ___333 |
| $11,448 |
(10)
Senior
Credit Facility
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
June 30, 2006, we had one outstanding note under
this facility with a maximum
principal amount of $1,820,000 and a maturity date
of March 6, 2007. As of June
30, 2006, this note had an outstanding principal
amount of $1,711,301 and total
accrued interest of $85,020.
On
August
23, 2005, Riverdale Carwash Lot3A, LLC entered into
a loan agreement with Vectra
Bank in the amount of $1,200,000. The note, which
is not part of the $10,000,000
construction facility with Vectra Bank, is being
amortized monthly over a
twenty-year period and has an eighteen month maturity.
The note is due to mature
on February 23, 2007 and as of June 30, 2006, this
note had an outstanding
principal balance of $1,172,169.
14
ACROSS
AMERICA REAL ESTATE CORP.
Notes
to
Consolidated Financial Statements
(Unaudited)
As
of
June 30, 2006 our total outstanding principal due
to Vectra Bank and our annual
schedule of repayment is as follows:
December
31,
2006 $ -0-
2007 2,883,470
$ 2,883.470
(11) 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.
(12)
Capitalized
Interest and Interest Expense
For
the
period ended June 30, 2006 the Company has recognized
$142,568 interest expense
that is not related to capitalized projects and $120,817
additional capitalized
interest expense that is included in either Construction
in Progress or Property
Held for Sale on the balance sheet June 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.
(13) Letters
of Intent
On
December 21, 2005 we announced that we have entered
into letters of intent with
two entities to provide financing for our continuing
operations. One of the
entities is GDBA, who would convert approximately
$3,000,000 of current debt
into Convertible Preferred Stock. As a result, under
each letter of intent, each
entity would hold a total investment of $10,000,000
in two instruments,
consisting of Senior Subordinated Notes, for a total
of $7,000,000, and
Convertible Preferred Stock, for a total of $3,000,000.
The entity which is not
GDBA, or its designees, would also be allowed to
purchase an additional amount
of Convertible Preferred stock up to an additional
$300,000. The letters of
intent are not binding upon the parties and remain
subject to the execution of
mutually acceptable contracts. As of August 7, 2006,
no such contracts have been
executed on either instrument and each remain outstanding
only as letters of
intent.
15
ACROSS
AMERICA REAL ESTATE CORP.
Notes
to
Consolidated Financial Statements
(Unaudited)
(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.
|
|
||||||||||||||||
|
Balance
|
Earnings
allocated to
|
Earnings
disbursed/ accrued for |
Balance
|
|||||||||||||
|
January
1, 2006
|
Noncontrolling
Interest
|
Noncontrolling
Interest
|
June
30, 2006
|
|||||||||||||
|
Firestone
|
$
|
-
|
$
|
(97,283
|
) |
$
|
97,283
|
$
|
-
|
|||||||
|
Cypress
|
4,594
|
-
|
-
|
4,594
|
||||||||||||
|
Stonegate
|
(9,843
|
) |
1,578
|
- |
(8,265
|
) | ||||||||||
|
Bluffton
|
478
|
2,024
|
- |
2,502
|
||||||||||||
|
Bluffton
46
|
-
|
60
|
- |
60
|
||||||||||||
|
Laveen
|
-
|
298
|
- |
298
|
||||||||||||
|
West
Valley
|
-
|
298
|
- |
298
|
||||||||||||
|
American
Fork
|
269
|
3,536
|
- |
3,805
|
||||||||||||
|
|
||||||||||||||||
|
Total
|
$
|
(4,502
|
) |
$
|
(89,489
|
) |
$
|
97,283
|
$
|
3,292
|
||||||
(15) Change
in
Presentation
Certain
classifications on the presentation of our Statement
of Cash
Flows for the period ended June 30, 2005 were changed
to conform to our current
period presentation. This change in presentation does not result in
a net
change to the Statement of Cash Flows.
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
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
six months ended June 30, 2006,
we had an operating loss of $74,351, which included
an operating profit of
$130,765 for the three months ended March 31, 2006
and an operating loss of
$204,722 for the three months ended June 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
SHAREHOLDER
We
are
currently dependant on our relationship with GDBA
Investments, LLLP, (“GDBA”),
our largest shareholder, through its Agreement to
Fund. We 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.
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.
18
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 shareholder, GDBA. 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.
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:
| * |
actual
or anticipated fluctuations in our operating
results;
|
| * |
changes
in financial estimates by securities analysts
or our failure to perform in
line with such estimates;
|
| * |
changes
in market valuations of other real estate
oriented companies, particularly
those that market services such as ours;
|
| * |
announcements
by us or our competitors of significant
innovations, acquisitions,
strategic partnerships, joint ventures
or capital commitments;
|
| * |
introduction
of technologies or product enhancements
that reduce the need for our
services;
|
| * |
the
loss of one or more key customers; and
|
| * |
departures
of key personnel.
|
19
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.
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.
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.
20
Results
of Operations
The
following discussion involves our results of operations
for the quarters ending
June 30, 2006 and June 30, 2005. Our revenues for
the quarter ended June 30,
2006 were $143,917 compared to revenues for the quarter
ended June 30, 2005 of
$42,651. Revenues for both quarters were comprised
entirely of rental income on
completed properties available for sale. Our revenues
for the six months ended
June 30, 2006 were $2,018,995, of which $1,723,000
represented the sale of a
Checker Auto Parts store from our TSD CSK Firestone,
LLC on March 24, 2006,
$268,995 was derived from rental income and $27,000
was from management fees.
Our revenues for the six months ended June 30, 2005
were $42,651 and were
derived entirely from rental income.
We
recognize Cost of Sales on projects during the period
in which they are sold.
Because we sold no projects during the quarters ended
June 30, 2006 or June 30,
2005, we had no Cost of Sales during those periods.
Cost of Sales for the six
months ended June 30, 2006 were $1,462,852 which
was entirely associated with
the cost of our Checker Auto Parts store in Firestone,
Colorado.
Gross
margins on the sale of this project were approximately
15.1%, which we believe
is on the lower end of our anticipated normal range
of gross margins for
projects going forward. We had no Cost of Sales in
the six months ended June 30,
2005.
Selling,
general and administrative costs were $348,639 for
the quarter ended June 30,
2006, compared to $165,368 for the quarter ended
June 30, 2005. Selling, general
and administrative costs were $630,494 for the six
months ended June 20, 2006
compared to $245,750 for the six months ended June
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 $213,312 for the three months ended June
30, 2006 compared to a net
loss of $156,995 for the three months ended June
30, 2005. We had a net loss of
$257,329 for the six months ended June 30, 2006 compared
to a net loss of
$243,648 for the six months ended June 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.
Management believes that these projects will produce
enough revenues during the
current year to absorb these additional costs.
Our
balance sheet on June 30, 2006 compared to June 30,
2005 reflects our increase
in project activity year over year. Both assets and
liabilities increased
substantially and proportionally with our additional
investments in projects and
our required borrowing activity to finance them.
Liquidity
and Capital Resources
Our
cash
balance on June 30, 2006 was $264,873, which included
$116,736 in operating cash
and $148,137 of restricted capital that was designated
for specific projects and
could not be used for our operations. This compares
to a cash balance of
$714,986 on June 30, 2005, which included $164,634
in operating cash and
$550,352 of restricted capital that was designated
for specific projects and
could not be used for our operations. We generate
operating cash from the sale
of properties. We continue to be dependent on our
ability to sell our projects
on a timely basis in order to generate capital for
our operations.
We
decreased our net cash used in operating activities
and net cash provided by
financing activities substantially for the six months
ended June 30, 2006
compared to the six months ended June 30, 2005. These
changes are largely due to
a fewer land purchases and less construction activity
when comparing the
quarters year over year. Management believes that
this decrease is largely due
to timing issues for the quarter and is not generally
representative of the
activity we anticipate for the remainder of the current
fiscal
year.
21
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.
In
December, 2005, we entered into letters of intent
with two entities to provide
financing for our continuing operations. Under each
letter of intent, each
entity would invest a total of Ten Million Dollars
($10,000,000) in two
instruments, consisting of Senior Subordinated Notes,
for a total of Seven
Million Dollars ($7,000,000), and Convertible Preferred
Stock, for a total of
Three Million Dollars ($3,000,000). One of the entities,
or its designees, would
also be allowed to purchase an additional amount
of Convertible Preferred Stock
up to an additional Three Hundred Thousand Dollars
($300,000). These letters of
intent are not binding upon the parties and remain
subject to the execution of
mutually acceptable contracts. To
date,
we have not finalized either letter of intent. Otherwise,
at the present time,
we have no definitive plans to raise any additional
capital.
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.
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.
22
ITEM
3.
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.
23
PART
II.
OTHER INFORMATION
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.
ITEM
2.
CHANGES IN SECURITIES
None
ITEM
3.
DEFAULTS UPON SENIOR SECURITIES
None
ITEM
4.
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM
5.
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 will become
our Vice President of Marketing and Sales. Mr. Lagerborg
remains on our Board of
Directors.
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, which includes 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.
24
ITEM
6.
EXHIBITS AND REPORTS ON FORM 8-K
Exhibits
| 21 | List of Subsidiaries |
|
31.1
|
Certification
of Chief Executive Officer pursuant to
Rule
13a-14(a)/15(d)-14(a)
|
|
31.2
|
Certification
of Chief Financial Officer pursuant to
Rule
13a-14(a)/15(d)-14(a)
|
|
32.1
|
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
|
|
32.2
|
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 June
30, 2006: JuneJune 8, 2006, relating to the resignation
of an officer; April 26,
2006, relating to Form FD Disclosure; April 12,
2006, relating to the sale of an
asset.
25
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.
| |
|
ACROSS
AMERICA REAL ESTATE CORP. |
| Date: August 14, 2006 | By: | /s/ Ann L. Schmitt |
|
Ann L. Schmitt |
||
| President, Chief Executive Officer | ||
| |
|
|
| Date: August 14, 2006 | By: | /s/ James W Creamer III |
|
James W Creamer III |
||
| Treasurer, Chief Financial Officer | ||
24