Filed by Bowne Pure Compliance
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 March 31, 2008
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 |
|
|
|
|
| (State or other jurisdiction
|
|
(IRS Employer File Number) |
| of incorporation) |
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|
| |
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| 700 17th Street, Suite 1200 |
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|
| Denver, Colorado
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|
80202 |
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|
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| (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 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 May 7, 2008, 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 May 7, 2008) was
approximately $705,254.
Transitional Small Business Disclosure Format (check one): Yes o No þ
FORM 10-QSB
Across America Real Estate Corp.
TABLE OF CONTENTS
2
PART I FINANCIAL INFORMATION
References in this document to “us,” “we,” “AARD” or “Company” refer to Across America Real Estate
Corp. and its subsidiaries.
ITEM 1. FINANCIAL STATEMENTS
Across America Real Estate Corp.
Consolidated Balance
Sheets
| |
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|
| |
|
March 31, |
|
|
December 31, |
|
| |
|
2008 |
|
|
2007 |
|
| |
|
(unaudited) |
|
|
(audited) |
|
Assets |
|
|
|
|
|
|
|
|
Cash and Equivalents |
|
$ |
631,362 |
|
|
$ |
2,035,620 |
|
Deposits held by an affiliate |
|
|
938,322 |
|
|
|
940,880 |
|
Accounts Receivable, net |
|
|
96,987 |
|
|
|
2,156,959 |
|
Property and equipment, net
of accumulated depreciation |
|
|
115,150 |
|
|
|
112,918 |
|
Real estate held for sale |
|
|
15,722,579 |
|
|
|
14,398,602 |
|
Construction in progress |
|
|
1,777,117 |
|
|
|
2,484,179 |
|
Land held for development |
|
|
4,851,453 |
|
|
|
5,388,089 |
|
Deferred tax asset |
|
|
2,486,232 |
|
|
|
1,143,334 |
|
Current tax asset |
|
|
— |
|
|
|
965,498 |
|
Deposits and prepaids |
|
|
50,229 |
|
|
|
48,451 |
|
|
|
|
|
|
|
|
Total assets |
|
$ |
26,669,431 |
|
|
$ |
29,674,530 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Shareholders’ Equity |
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
71,766 |
|
|
$ |
262,209 |
|
Accrued liabilities |
|
|
96,442 |
|
|
|
409,066 |
|
Dividends payable |
|
|
77,338 |
|
|
|
78,187 |
|
Senior subordinated note payable, related parties |
|
|
7,000,000 |
|
|
|
7,000,000 |
|
Senior subordinated revolving note, related parties |
|
|
12,527,096 |
|
|
|
14,169,198 |
|
Note payable |
|
|
5,494,854 |
|
|
|
5,716,397 |
|
Capital lease obligations |
|
|
6,875 |
|
|
|
7,517 |
|
Unearned Revenue |
|
|
578,499 |
|
|
|
522,841 |
|
|
|
|
|
|
|
|
Total liabilities |
|
|
25,852,870 |
|
|
|
28,165,415 |
|
|
|
|
|
|
|
|
|
|
Shareholders’ equity |
|
|
|
|
|
|
|
|
Non controlling interest |
|
|
4,594 |
|
|
|
4,594 |
|
Convertible preferred stock, $.10 par value; 1,000,000 shares authorized,
517,000 shares issued and outstanding, (liquidation preference $6,281,338) |
|
|
51,700 |
|
|
|
51,700 |
|
Common stock, $.001 par value; 50,000,000 shares authorized,
16,036,625 shares issued and outstanding |
|
|
16,037 |
|
|
|
16,037 |
|
Additional paid-in-capital |
|
|
6,462,540 |
|
|
|
6,440,398 |
|
Retained earnings |
|
|
(5,718,310 |
) |
|
|
(5,003,614 |
) |
|
|
|
|
|
|
|
Total shareholders’ equity |
|
|
816,561 |
|
|
|
1,509,115 |
|
|
|
|
|
|
|
|
Total liabilities and shareholders’ equity |
|
$ |
26,669,431 |
|
|
$ |
29,674,530 |
|
|
|
|
|
|
|
|
See accompanying notes to condensed consolidated financial statements
3
Across America Real Estate Corp.
Consolidated Statements of Operations
(unaudited)
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|
For the Quarter Ended |
|
| |
|
March 31, |
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| |
|
2008 |
|
|
2007 |
|
| |
Revenue: |
|
|
|
|
|
|
|
|
Sales |
|
$ |
1,164,000 |
|
|
$ |
— |
|
Rental income |
|
|
26,405 |
|
|
|
36,329 |
|
Management fees |
|
|
— |
|
|
|
191,655 |
|
|
|
|
|
|
|
|
Total revenue |
|
|
1,190,405 |
|
|
|
227,984 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
Cost of sales |
|
|
1,164,000 |
|
|
|
— |
|
Selling, general and administrative |
|
|
688,004 |
|
|
|
826,202 |
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
1,852,004 |
|
|
|
826,202 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations |
|
|
(661,599 |
) |
|
|
(598,218 |
) |
|
|
|
|
|
|
|
|
|
Non-operating expense: |
|
|
|
|
|
|
|
|
Interest income |
|
|
8,985 |
|
|
|
385 |
|
Interest expense |
|
|
(362,145 |
) |
|
|
(19,733 |
) |
Other income (expense) |
|
|
— |
|
|
|
(2,189 |
) |
|
|
|
|
|
|
|
Loss before income taxes
and non controlling interest |
|
|
(1,014,759 |
) |
|
|
(619,755 |
) |
|
|
|
|
|
|
|
|
|
Income tax benefit |
|
|
(377,400 |
) |
|
|
(212,735 |
) |
|
|
|
|
|
|
|
Loss before non controlling interest |
|
|
(637,359 |
) |
|
|
(407,020 |
) |
Non controlling interest in income of
consolidated subsidiaries |
|
|
— |
|
|
|
6,447 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(637,359 |
) |
|
$ |
(413,467 |
) |
|
|
|
|
|
|
|
|
|
Preferred stock dividends |
|
|
(77,338 |
) |
|
|
(76,488 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss available to common shareholders |
|
$ |
(714,697 |
) |
|
$ |
(489,955 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted loss per common share |
|
$ |
(0.04 |
) |
|
$ |
(0.03 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted weighted average common shares outstanding |
|
|
16,036,625 |
|
|
|
16,036,625 |
|
|
|
|
|
|
|
|
See accompanying notes to condensed consolidated financial statements
4
Across America Real Estate Corp.
Consolidated Statements of Cash Flows
(unaudited)
| |
|
|
|
|
|
|
|
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| |
|
For the Quarter Ended |
|
| |
|
March 31, |
|
| |
|
2008 |
|
|
2007 |
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(637,359 |
) |
|
$ |
(413,467 |
) |
Adjustments to reconcile net income to net cash used by
operating activities: |
|
|
|
|
|
|
|
|
Deferred income taxes |
|
|
(35,300 |
) |
|
|
— |
|
Depreciation |
|
|
9,165 |
|
|
|
7,747 |
|
Stock option compensation expense |
|
|
22,143 |
|
|
|
31,163 |
|
Changes in operating assets and operating
liabilities: |
|
|
|
|
|
|
|
|
Construction in progress |
|
|
707,062 |
|
|
|
(1,114,404 |
) |
Real estate held for sale |
|
|
(1,323,977 |
) |
|
|
(3,621,070 |
) |
Land held for development |
|
|
536,636 |
|
|
|
653,585 |
|
Accounts receivable |
|
|
2,059,972 |
|
|
|
(13,661 |
) |
Deposits and prepaids |
|
|
(1,778 |
) |
|
|
(7,199 |
) |
Accounts payable and accrued liabilities |
|
|
(503,917 |
) |
|
|
(163,013 |
) |
Income tax assets and liabilities |
|
|
(342,100 |
) |
|
|
(206,150 |
) |
Unearned revenue |
|
|
55,658 |
|
|
|
— |
|
Non-controlling interest |
|
|
— |
|
|
|
— |
|
Indebtedness to related party |
|
|
— |
|
|
|
720,250 |
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating
activities |
|
|
546,205 |
|
|
|
(4,126,219 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
Cash collections on notes receivable |
|
|
65,000 |
|
|
|
133,269 |
|
Issuance of notes receivable |
|
|
(62,442 |
) |
|
|
(503,041 |
) |
Cash paid for property and equipment |
|
|
(11,397 |
) |
|
|
(10,396 |
) |
|
|
|
|
|
|
|
Net cash (used in) investing activities |
|
|
(8,839 |
) |
|
|
(380,168 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
Preferred stock dividends paid |
|
|
(77,337 |
) |
|
|
— |
|
Proceeds from issuance of related party
loans |
|
|
924,952 |
|
|
|
1,780,500 |
|
Repayment of related party loans |
|
|
(2,567,054 |
) |
|
|
(422,576 |
) |
Proceeds from issuance of notes payable |
|
|
570,070 |
|
|
|
3,278,423 |
|
Repayment of notes payable |
|
|
(791,613 |
) |
|
|
(422,576 |
) |
Repayment of lease obligation |
|
|
(642 |
) |
|
|
(1,620 |
) |
|
|
|
|
|
|
|
Net cash (used in) provided by financing
activities |
|
|
(1,941,624 |
) |
|
|
4,212,151 |
|
|
|
|
|
|
|
|
Net change in cash |
|
|
(1,404,258 |
) |
|
|
(294,236 |
) |
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, beginning of the
period |
|
|
2,035,620 |
|
|
|
1,097,440 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of the
period |
|
$ |
631,362 |
|
|
$ |
803,204 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow
information: |
|
|
|
|
|
|
|
|
Cash paid during the year for: |
|
|
|
|
|
|
|
|
Income taxes |
|
$ |
— |
|
|
$ |
— |
|
|
|
|
|
|
|
|
Interest |
|
$ |
548,975 |
|
|
$ |
273,625 |
|
|
|
|
|
|
|
|
Supplemental disclosure of non-cash investing and
financing
activities |
|
|
|
|
|
|
|
|
Preferred stock dividends declared but not
paid |
|
$ |
77,338 |
|
|
$ |
76,488 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,404,258 |
) |
|
|
(294,236 |
) |
|
|
|
(1,404,258 |
) |
|
|
(294,236 |
) |
|
|
|
— |
|
|
|
— |
|
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, which were active at March 31, 2008:
Name of Subsidiary Ownership
| |
|
|
|
|
| Name of Subsidiary |
|
Ownership |
|
| |
CCI Southeast, LLC (“CCISE”) |
|
|
100.00 |
% |
Riverdale Carwash Lot 3A, LLC (“Riverdale”) |
|
|
100.00 |
% |
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 (“Flat Shoals”) |
|
|
51.00 |
% |
AARD Westminster OP7, LLC (“Westminster OP7”) |
|
|
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 |
% |
AARD-Charmar Greeley, LLC (“Starbucks”) |
|
|
51.00 |
% |
AARD-Charmar Greeley Firestone, LLC |
|
|
51.00 |
% |
AARD 5020 Lloyd Expy, LLC (“Evansville”) |
|
|
51.00 |
% |
AARD ‘2245 Main Street, LLC (“Plainfield”) |
|
|
51.00 |
% |
AARD-Buckeye, LLC (“Buckeye”) |
|
|
51.00 |
% |
AARD Esterra Mesa 1, LLC (“Esterra Mesa 1”) |
|
|
51.00 |
% |
AARD Esterra Mesa 2, LLC (“Esterra Mesa 2”) |
|
|
51.00 |
% |
AARD Esterra Mesa 3, LLC (“Esterra Mesa 3”) |
|
|
51.00 |
% |
AARD Esterra Mesa 4, LLC (“Esterra Mesa 4”) |
|
|
51.00 |
% |
AARD MDJ Goddard, LLC (“Goddard”) |
|
|
51.00 |
% |
AARD Charmar Arlington Boston Pizza, LLC (“Charmar Boston Pizza”) |
|
|
51.00 |
% |
L-S Corona Pointe, LLC (“L-S Corona”) |
|
|
50.01 |
% |
AARD LECA LSS Lonestar LLC |
|
|
51.00 |
% |
AARD LECA VL1 LLC |
|
|
51.00 |
% |
AARD NOLA St claude LLC |
|
|
51.00 |
% |
AARD ORFL FD Goldenrod LLC |
|
|
51.00 |
% |
AARD SATX CHA LLC |
|
|
51.00 |
% |
AARD JXFL UTC LLC |
|
|
51.00 |
% |
6
All significant intercompany accounts and transactions have been eliminated in consolidation.
Revenue Recognition
The Company recognizes revenue from real estate sales under the full accrual method. Under the full accrual method,
profit may be realized in full when real estate is sold, provided (1) the profit is determinable and (2) the earnings
process is virtually complete (the Company is not obligated to perform significant activities after the sale to earn
the profit). The Company recognizes revenue from its real estate sales transactions on the closing date.
The Company also generates minimal rental income and management fee income between the periods when a real estate
project is occupied through the closing date on which the project is sold. Rental income and management fee income is
recognized in the month earned.
The subsidiary LLC members have agreed to pay a minimal interest increase over the cost of funds the Company accrues
and pays for its subordinated debt. The subsidiary interest is accrued on a monthly basis based on the outstanding
balance that is due the Company. The interest markup is recognized on the Company’s consolidated balance sheet as
unearned revenue. Upon the sale of a project, the interest increase is recognized as financing activities revenue on
the Company consolidated statement of operations.
Use of Estimates
The preparation of financial statements in accordance with generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported amounts of assets
and liabilities and the disclosure of contingent assets and liabilities at the date of financial
statements and the reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
Significant estimates have been made by management with respect to the fair values utilized for
calculating the Company’s impairments on real estate projects. During the years ended December 31,
2007 and 2006, the Company recorded impairment losses totaling $3,046,196 and $-0-, respectively.
These estimates directly affect the Company’s financial statements, and any changes to the
estimates could materially affect the Company’s reported assets and net income.
Accounting Pronouncements
We continue to evaluate the impact of SFAS No. 141 (R), “Business Combinations” and SFAS No. 160,
“Noncontrolling Interests in Consolidated Financial Statements,” which are required to be adopted
at the beginning of our 2009 fiscal year.
In September 2006, the Financial Accounting Standards Board (FASB) issued SFAS No. 157, “Fair Value
Measurements” (SFAS No. 157). SFAS No. 157 defines fair value, establishes a framework for
measuring fair value in accounting principles generally accepted in the U.S. and expands
disclosures about fair value measurements. SFAS No. 157 is effective for financial statements
issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal
years. On January 1, 2008 the Company only partially adopted the provisions of SFAS No. 157
because of the issuance of Staff Position (the FSP) FAS 157-2, “Effective Date of FASB Statement
No. 157” which allows companies to delay the effective date of SFAS No. 157 for non-financial
assets and liabilities. The partial adoption had no impact on the
Company’s consolidated financial position and results of operations. Management does not believe
that the remaining provisions will have a material effect on the Company’s consolidated financial
position and results of operations when they become effective on January 1, 2009.
In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and
Financial Liabilities” (SFAS No. 159). SFAS No. 159 permits entities to choose to measure at fair
value many financial instruments and certain other items that are not currently required to be
measured at fair value. SFAS No. 159 is intended to improve financial reporting by allowing
companies to mitigate volatility in reported earnings caused by measuring related assets and
liabilities differently and to do so without having to apply complex hedge accounting provisions.
SFAS No. 159 also establishes presentation and disclosure requirements designed to facilitate
comparisons between entities that choose different measurement attributes for similar types of
assets and liabilities. SFAS No. 159 does not affect any existing accounting literature that
requires certain assets and liabilities to be carried at fair value and does not effect disclosure
requirements in other accounting standards. The Company adopted SFAS No. 159 effective for the
fiscal year beginning December 29, 2007, and the adoption had no impact on the Company’s
consolidated financial position and results of operations.
(2) Current Development Projects
Current development projects are divided into two line items on our balance sheet, “land held for
development” and “construction in progress”, which is made up of all hard costs, soft costs and
financing costs that are capitalized into the project. As of March 31, 2008 we had four projects
categorized as current development projects totaling $6,628,569, which was comprised of $4,851,453
in land and $1,777,117 of construction in progress. These properties are in stages ranging from
pre-construction to mid-construction and are located in three states; California, Colorado and
Louisiana. They represent leases from Lone Star Steakhouse, Family Dollar Stores and Meineke.
7
(3) Real Estate Held for Sale
When a project is completed and a certificate of occupancy is issued, the assets for the project
under land held for sale and construction in progress are reclassified and combined into “real
estate held for sale”. In cases where we own raw land and have made the business decision not to
move forward on development, the property is also reclassified into real estate held for sale.
As of March 31, 2008 we had ten properties classified as real estate held for sale totaling
$15,722,579 in costs, five of which were completed projects and five of which were raw land
currently being marketed for sale. The completed projects total $9,175,313 with tenants that
include corporate lease and franchisees for Fed Ex Kinko’s, Starbucks, Cingular Wireless, Aspen
Dental and Shell Oil and are in Arizona, Colorado, Indiana and Utah. Land that is currently for
sale totals $6,547,266 and is located in Arizona, Colorado, Florida and South Carolina.
(4) Related Party Transactions
On March 31, 2008 our outstanding principal balances on our Senior Subordinated Notes and Senior
Subordinated Revolving Notes are summarized below:
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
GDBA |
|
|
BOCO |
|
|
|
|
| |
|
Investments |
|
|
Investments |
|
|
Total |
|
Senior subordinated notes payable related parties |
|
$ |
3,500,000 |
|
|
$ |
3,500,000 |
|
|
$ |
7,000,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revolving Lines of Credit |
|
|
6,000,000 |
|
|
|
6,000,000 |
|
|
|
12,000,000 |
|
Accrued Interest |
|
|
263,548 |
|
|
|
263,548 |
|
|
|
527,096 |
|
|
|
|
|
|
|
|
|
|
|
Senior subordinated revolving notes related parties |
|
$ |
6,263,548 |
|
|
$ |
6,263,548 |
|
|
$ |
12,527,096 |
|
|
|
|
|
|
|
|
|
|
|
GDBA Investments, LLLP
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. On September 28, 2006, GDBA
Investments replaced the Agreement to Fund with a new investment structure that included 250,000
shares of Series A Convertible Preferred Stock at $12.00 per share, a $3.5 million Senior
Subordinated Note and a $3.5 million Senior Subordinated Revolving Note. This “Agreement to Fund”
is no longer in effect.
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. Each share of Series A Convertible Preferred Stock is convertible, at the
option of the holder, at any time after the issuance of such shares.
In the event the Company issues or sells additional shares of common stock for consideration less
than the Series A conversion price in effect on the date of such issuance or sale (currently $3.00
per share), then the Series A conversion price will be reduced to a price equal to the
consideration per share paid for such additional shares of common stock.
At any time following the one-year anniversary of the Series A original issuance date (September
28, 2006), the Company may cause the conversion of all, but not less than all, of the Series A
Preferred Stock. However, the Company may not complete the mandatory conversion unless a
registration statement under the Securities Act of 1933 is effective, registering for resale the
shares of common stock to be issued upon conversion of the Series A Preferred Stock.
8
The Senior Subordinated Note and the Senior Subordinated Revolving Note both mature on September
28, 2009 and carry a floating 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, which resets and is payable quarterly. Both the
Senior Subordinated Notes and the Senior Subordinated Revolving Notes are subordinated to our
Senior Credit Facilities.
On September 28, 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.
On April 14, 2007 we completed an additional private placement with GDBA Investments consisting of
$3 million in Subordinated Revolving Notes. The Notes also 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, which
is payable and resets quarterly. The notes mature June 30, 2008.
On March 31, 2008, we owed dividends of $37,397 and interest of $263,548 due to GDBA Investments,
LLLP.
BOCO Investments, LLC
On September 28, 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 Mr. Joseph Zimlich, BOCO
Investments, LLC’s Chief Executive Officer, purchased 17,000 shares of Series A Convertible
Preferred Stock at $12.00 per share in his own name.
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. Each share of Series A Convertible Preferred Stock is convertible, at the
option of the holder, at any time after the issuance of such shares.
In the event the Company issues or sells additional shares of common stock for consideration less
than the Series A conversion price in effect on the date of such issuance or sale (currently $3.00
per share), then the Series A conversion price will be reduced to a price equal to the
consideration per share paid for such additional shares of common stock.
At any time following the one-year anniversary of the Series A original issuance date (September
28, 2006), the Company may cause the conversion of all, but not less than all, of the Series A
Prefeerred Stock. However, the Company may not complete the mandatory conversion unless a
registration statement under the Securities Act of 1933 is effective, registering for resale the
shares of common stock to be issued upon conversion of the Series A Preferred Stock.
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. Both the Senior
Subordinated Notes and the Senior Subordinated Revolving Notes are subordinated to our Senior
Credit Facilities.
On April 14, 2007 we completed an additional private placement with BOCO Investments consisting of
$3 million in Subordinated Revolving Notes. The Notes also 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, which
is payable and resets quarterly. The notes mature June 30, 2008.
On October 25, 2007 we obtained a temporary line of credit from BOCO Investments to fund up to
$3,000,000 on a revolving basis for a ninety day period. The temporary line helped facilitate the
timing of the origination and completion of our fourth quarter projects. The line carried 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. We utilized $1,150,000 from this line which was repaid in January, 2008.
9
On March 31, 2008, we owed dividends of $37,398 and interest of $263,548 to BOCO Investments and
dividends of $2,543 to Mr. Zimlich.
(5) Notes Receivable and Development Deposits
During the course of acquiring properties for development, Across America Real Estate Corp, 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 we can
collateralize the capital invested by us, the promissory note is cancelled. AARD had $938,322 in
earnest money deposits outstanding at March 31, 2008. These deposits were held by development
partners who have each secured them through promissory notes held by us. These promissory notes
are callable on demand or due within a year and carry an interest rate between 12% and 12.5% per
annum.
(6) Property and Equipment
The Company’s property and equipment consisted of the following at March 31, 2008:
| |
|
|
|
|
Equipment |
|
$ |
23,277 |
|
Furniture and fixtures |
|
|
17,396 |
|
Computers and related equipment |
|
|
35,414 |
|
Software and intangibles |
|
|
91,964 |
|
|
|
|
|
|
|
$ |
168,051 |
|
less accumulated depreciation and amortization |
|
|
(52,901 |
) |
|
|
|
|
|
|
$ |
115,150 |
|
|
|
|
|
Depreciation expense totaled $9,165 and $7,747 for the quarters ended March 31, 2008 and March
31, 2007 respectively.
(7) 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.
Series A Convertible Preferred Stock
As of March 31, 2008 the Company has 517,000 shares of Series A Convertible Preferred Stock
authorized and issued. 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. The shares also
have a liquidation preference equal to the original issue price per share, adjusted for stock
splits, dividends, combinations or other recapitalization of the Series A Preferred Stock including
any accrued but unpaid dividends on each share.
Common Stock
As of March 31, 2008 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.
10
Stock Based Compensation
On November 8, 2006 Across America Real Estate Corp’s Board of Directors approved the issuance of
options under the Corporation’s 2006 Incentive Compensation Plan (the “Plan”). Under the Plan the
Company is authorized issue shares or options to purchase shares up not to exceed 1,000,000 shares.
Options granted shall not be exercisable more than ten years after the date of the grant. The
exercise price of any option grant shall not be less than the fair market value of the stock price
on the date of the grant.
Under the Plan, three of the Company’s officers were granted options to purchase a total of 385,000
shares of common stock at the closing stock price as of November 8, 2006, which was $1.65 per
share. The options were granted with a five year term and a vesting schedule of 25% per year for
four years on the anniversary date of employment beginning with the next anniversary date for each
employee.
The fair value of the each option was calculated on the grant date of November 8, 2006 using the
Black-Scholes model and was valued at $0.94 using the following assumptions and inputs:
| |
|
|
|
|
Risk free interest rate |
|
|
4.61 |
% |
Expected life |
|
|
5.0 |
|
Dividend yield |
|
|
0.00 |
% |
Expected volatility |
|
|
62.69 |
% |
On March 6, 2007, three of the Company’s directors were granted options under the Plan to purchase
a total of 15,000 shares of common stock at the closing stock price as of March 6, 2007, which was
$2.75 per share. The options were granted with a five year term and a vesting schedule of 25% per
year for four years on the anniversary date of the grant.
The fair value of each option was calculated on the grant date of March 6, 2007 using the
Black-Scholes model and was valued at $1.94 using the following assumptions and inputs:
| |
|
|
|
|
Risk free interest rate |
|
|
4.48 |
% |
Expected life |
|
|
5.0 |
|
Dividend yield |
|
|
0.00 |
% |
Expected volatility |
|
|
86.87 |
% |
On April 2, 2007, employees were granted options under the Plan to purchase a total 55,000
shares of common stock at the closing stock price as of April 2, 2007, which was $1.90 per share.
The options were granted with a five year term and a vesting schedule of 25% per year for four
years on the anniversary date of the grant.
The fair value of each option was calculated on the grant date of April 2, 2007 using the
Black-Scholes model and was value at $1.34 using the following assumptions and inputs:
| |
|
|
|
|
Risk free interest rate |
|
|
4.54 |
% |
Expected life |
|
|
5.0 |
|
Dividend yield |
|
|
0.00 |
% |
Expected volatility |
|
|
86.87 |
% |
There are a number of assumptions and estimates used in calculating the fair value of options.
These include the expected term of the option, the expected volatility and the risk free interest
rate. These assumptions are included in the charts above. The basis for our expected volatility and
expected term estimates is a combination of our historical information. The risk-free interest
rate is based upon yields of U.S. Treasury strips with terms equal to the expected life of the
option or award being valued. Across America Real Estate Corp does not currently pay a dividend nor
does the Company expect to pay a dividend in the foreseeable future.
11
The total amount of compensation calculated for the full amount of options granted is $465,923. We
accrue the stock based compensation expense in the periods in which the options vest. For the
quarter ended March 31, 2008, we recognized $22,143 in expense related to stock based compensation.
Stock option activity for the quarter ended March 31, 2008 is summarized as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Options Outstanding |
|
|
Options Exercisable |
|
| |
|
|
|
|
|
Weighted |
|
|
Weighted |
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
Weighted |
|
|
|
|
| |
|
|
|
|
|
Average |
|
|
Remaining |
|
|
Aggregate |
|
|
|
|
|
|
Average |
|
|
Remaining |
|
|
Aggregate |
|
| |
|
Number |
|
|
Exercise |
|
|
Contractual |
|
|
Intrinsic |
|
|
Shares |
|
|
Exercise |
|
|
Contractual |
|
|
Intrinsic |
|
| |
|
of Options |
|
|
Price |
|
|
Term |
|
|
Value |
|
|
Exercisable |
|
|
Price |
|
|
Term |
|
|
Value |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31,
2006 |
|
|
385,000 |
|
|
|
1.65 |
|
|
|
4.9 |
|
|
|
1,732,500 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Activity during 2007: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted |
|
|
70,000 |
|
|
|
2.08 |
|
|
|
4.2 |
|
|
|
— |
|
|
|
96,250 |
|
|
|
1.65 |
|
|
|
3.9 |
|
|
|
— |
|
Expired/Cancelled |
|
|
(26,250 |
) |
|
|
1.65 |
|
|
|
3.9 |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Forfeited |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Exercised |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, at December 31,
2007 |
|
|
428,750 |
|
|
|
1.72 |
|
|
|
3.9 |
|
|
|
— |
|
|
|
96,250 |
|
|
|
1.65 |
|
|
|
3.9 |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Activity during 2008: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
3,750 |
|
|
|
2.75 |
|
|
|
3.9 |
|
|
|
— |
|
Expired/Cancelled |
|
|
(250,000 |
) |
|
|
1.65 |
|
|
|
3.6 |
|
|
|
|
|
|
|
(62,500 |
) |
|
|
1.65 |
|
|
|
3.6 |
|
|
|
— |
|
Forfeited |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Exercised |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, at March 31,
2008 |
|
|
178,750 |
|
|
|
1.82 |
|
|
|
3.8 |
|
|
|
— |
|
|
|
37,500 |
|
|
|
1.76 |
|
|
|
3.6 |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12
(8) Income Taxes
The provision for income taxes consists of the following:
Income tax asset (liability):
Significant components of the Company’s deferred tax assets and liabilities are as follows:
| |
|
|
|
|
Deferred tax assets: |
|
|
|
|
Impairment of asset |
|
$ |
1,176,456 |
|
Net operating loss and carry-forwards |
|
|
790,090 |
|
Partnership income |
|
|
419,222 |
|
Bad debt |
|
|
100,854 |
|
Depreciation |
|
|
(390 |
) |
|
|
|
|
Total deferred tax assets |
|
$ |
2,486,232 |
|
|
|
|
|
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 for income tax
purposes.
Reconciliation of the income tax expense computed at U.S. federal statutory to the provision for
income taxes is as follows:
| |
|
|
|
|
Deferred tax benefit (expense): |
|
|
|
|
Federal |
|
$ |
299,195 |
|
State |
|
|
42,905 |
|
|
|
|
|
Total net deferred tax benefit |
|
$ |
342,100 |
|
|
|
|
|
|
|
|
|
|
Tax at US federal statutory rates |
|
$ |
345,018 |
|
State income taxes, net of federal |
|
|
33,487 |
|
Other |
|
|
(1,105 |
) |
|
|
|
|
Total income tax benefit |
|
$ |
377,400 |
|
|
|
|
|
In assessing the realizability of deferred tax assets, management considers whether it is more
likely than not that some portion or all of the deferred tax assets will not be realized. The
ultimate realization of deferred tax assets is dependent upon the realization of future taxable
income during the periods in which those temporary differences become deductible. Management
considers past history, the scheduled reversal of taxable temporary differences, projected future
taxable income, and tax planning strategies in making this assessment. A valuation allowance for
deferred tax assets is provided when it is more likely than not that some portion or all of the
deferred tax assets will not be realized. It is the full intention of the Company, that any
carryback and carryforward amounts will be utilized against future taxable income. The vast
majority of our NOL carryforwards will expire through the year 2028. As of March 31, 2008, the
Company has a valuation allowance of $ -0-.
(9) 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 |
|
| |
|
December 31, 2007 |
|
|
Noncontrolling Interest |
|
|
Noncontrolling Interest |
|
|
March 31, 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cypress |
|
$ |
4,594 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
4,594 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
4,594 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
4,594 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13
(10) 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 United
States Federal Deposit Insurance Corporation (“FDIC”). The loss that would have resulted from that
risk totaled $416,360 at March 31, 2008, for the excess of the deposit liabilities reported by the
financial institution versus 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.
(11) Notes Payable
Vectra Bank Senior Credit Facility:
On April 25, 2005, we entered into a $10 million senior credit facility with Vectra Bank of
Colorado (“Vectra Bank”). This commitment permits us to fund construction notes for build-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. The interest rate on each note is equal
to the 30 day LIBOR plus 2.25%. 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 principals.
On March 27, 2008, we executed the Third Amendment to our Credit Agreement with Vectra Bank
extending the expiration of our $10 million facility to May 31, 2009. While the terms and
conditions were modified slightly from the original agreement, they are not materially different
than the original agreement from 2005. 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 March 31, 2008, we had three outstanding notes under this facility with a principal amount
totaling $1,443,661. Total interest accrued through March 31, 2008 was $87,372.
United Western Bank Senior Credit Facility
On May 7, 2007, we entered into a $25 million senior credit facility with United Western Bank. This
commitment permits us to fund construction notes for build-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 United Western 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. The interest rate on each note is equal to Prime rate minus 50 basis
points Each note under the facility is for an amount, as determined by United Western 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. United Western Bank retains a First Deed of Trust on each property financed.
As of March 31, 2008, we had three outstanding notes under this facility with a principal amount
totaling $3,836,456. Total interest accrued through March 31, 2008 was $127,365.
14
As of March 31, 2008 our total outstanding principal and interest due on all outstanding notes
payable and our annual schedule of repayment is as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
United |
|
|
|
|
| |
|
Vectra |
|
|
Western |
|
|
Total |
|
Principal |
|
$ |
1,443,661 |
|
|
$ |
3,836,456 |
|
|
$ |
5,280,117 |
|
Accrued interest |
|
|
87,372 |
|
|
|
127,365 |
|
|
|
214,737 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1,531,033 |
|
|
$ |
3,963,821 |
|
|
$ |
5,494,854 |
|
|
|
|
|
|
|
|
|
|
|
(12) 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.
The future minimum lease payments under the leases are as follows:
| |
|
|
|
|
2008 |
|
$ |
2,079 |
|
2009 |
|
|
2,772 |
|
2010 |
|
|
2,079 |
|
|
|
|
|
|
|
$ |
6,930 |
|
less imputed interest |
|
|
55 |
|
|
|
|
|
|
|
$ |
6,875 |
|
|
|
|
|
Assets held under capital leases are recorded at the fair value of the leased asset at the
inception of the lease. Amortization expense is computed using the straight-line method over the
shorter of the estimated useful lives of the assets or the period of the related lease.
(13) Impairment of Assets
We invest significantly in real estate assets. Accordingly, our policy on asset impairment is
considered a critical accounting estimate. Management periodically evaluates the Company’s property
and equipment to determine whether events or changes in circumstances indicate that a possible
impairment in the carrying values of the assets has occurred. As part of this evaluation, and in
accordance with Statement of Financial Accounting Standard No. 144, “Accounting for the Impairment
or Disposal of Long-Lived Assets” (“SFAS No. 144”), the Company records the carrying value of the
property at the lower of its carrying value or its estimated fair value, less estimated selling
costs. The amount the Company will ultimately realize on these asset sales could differ from the
amount recorded in the financial statements. The Company engages real estate brokers to assist in
determining the estimated selling price or when external opinions are not available uses their own
market knowledge. The estimated selling costs are based on the Company’s experience with similar
asset sales. The Company records an impairment charge and writes down an asset’s carrying value if
the carrying value exceeds the estimated selling price less costs to sell.
We recognized no impairments for the quarter ended March 31, 2008.
15
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. 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 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.
THERE IS NO GUARANTEE THAT WE WILL BE PROFITABLE IN THE FUTURE. WE WERE UNPROFITABLE FOR OUR TWO
MOST RECENT FISCAL YEAR ENDS.
Our revenues for the fiscal year ended December 31, 2007 were $17,875,858. We had a net loss of
$3,959,059 for the fiscal year ended December 31, 2007. Our revenues for the fiscal year ended
December 31, 2006 were $8,459,994. We had a net loss of $735,771 for the fiscal year ended December
31, 2006. Our revenues for the quarter ended March 31, 2008 were $1,190,405 compared to revenues
for the quarter ended March 31, 2007 of $227,984. We had a net loss of $637,359 for the quarter
ended March 31, 2008 compared to a net loss of $407,020 for the quarter ended March 31, 2007. We
have only completed a limited number of 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.
BECAUSE WE HAVE RECURRING LOSSES, HAVE USED SIGNIFICANT CASH IN SUPPORT OF OUR OPERATING
ACTIVITIES, HAVE A LIMITED OPERATING HISTORY AND ARE RELIANT UPON FUNDING COMMITMENTS WITH TWO
SIGNIFICANT SHAREHOLDERS, OUR ACCOUNTANTS HAVE EXPRESSED DOUBTS ABOUT OUR ABILITY TO CONTINUE AS A
GOING CONCERN.
For our audit dated December 31, 2007, our accountants have expressed doubt about our ability to
continue as a going concern as a result of recurring losses, the use of significant cash in support
of our operating activities, our limited operating history and our reliance upon funding
commitments with two significant shareholders. Our continuation as a going concern is dependent
upon our ability to generate sufficient cash flow to meet our obligations on a timely basis and
ultimately to attain profitability. Our ability to achieve and maintain profitability and positive
cash flow is dependent upon:
| |
• |
|
our ability to find suitable real estate projects; and |
| |
|
| |
• |
|
our ability to generate sufficient revenues from those projects. |
16
We cannot guarantee that we will be successful in generating sufficient revenues or other funds in
the future to cover these operating costs. Failure to generate sufficient revenues will cause us to
go out of business.
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, 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 will need
additional financing of some type, which we do not now possess, to fully develop our business plan.
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 business 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 build-to-suite 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. The value of our assets may become
impaired by a variety of factors, which would make it unlikely, if not impossible to profit from
the sale of our real estate. We have already experienced impairments to our assets and may do so in
the future. 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 COMMITMENTS WITH TWO SIGNIFICANT SHAREHOLDERS.
We are currently dependent upon our relationships with GDBA Investments, LLLP,(“GDBA”), our largest
shareholder, and BOCO Investments, LLC,(“BOCO”) a private Colorado limited liability company. Each
has provided us with funding through a $10 million subordinated debt vehicle and a $3 million
preferred convertible equity. In addition, BOCO has recently extended a $3,000,000 term loan to us
to facilitate the timing of the origination and completion of our fourth quarter projects. We would
be unable to fund any projects if we lose our current funding commitment from these shareholders.
In addition, our senior credit facility with Vectra Bank Colorado, which is renewable annually, has
been guaranteed by GDBA. In any case, we expect to rely upon both GDBA and BOCO for funding
commitments for the foreseeable future.
OUR INDEBTEDNESS UNDER OUR VARIOUS CREDIT FACILITIES ARE SUBSTANTIAL AND COULD LIMIT OUR ABILITY TO
GROW OUR BUSINESS.
As of March 31, 2008, we had total indebtedness under our various credit facilities of
approximately $25.0 million. Our indebtedness could have important consequences to you. For
example, it could:
| • |
|
increase our vulnerability to general adverse economic and industry conditions; |
| |
| • |
|
require us to dedicate a substantial portion of our cash flow from operations
to payments on our indebtedness if we do not maintain specified financial
ratios, thereby reducing the availability of our cash flow for other purposes;
or |
| |
| • |
|
limit our flexibility in planning for, or reacting to, changes in our business
and the industry in which we operate, thereby placing us at a competitive
disadvantage compared to our competitors that may have less indebtedness. |
17
In addition, our credit facilities permit us to incur substantial additional indebtedness in the
future. As of March 31, 2008, we had approximately $31.0 million available to us for additional
borrowing under our $55 million various credit facilities. If we increase our indebtedness by
borrowing under our various credit facilities or incur other new indebtedness, the risks described
above would increase.
OUR VARIOUS CREDIT FACILITIES HAVE RESTRICTIVE TERMS AND OUR FAILURE TO COMPLY WITH ANY OF THESE
TERMS COULD PUT US IN DEFAULT, WHICH WOULD HAVE AN ADVERSE EFFECT ON OUR BUSINESS AND PROSPECTS.
Our various credit facilities contain a number of significant covenants. These covenants limit our
ability and the ability of our subsidiaries to, among other things:
| • |
|
incur additional indebtedness; |
| |
| • |
|
make capital expenditures and other investments above a certain level; |
| |
| • |
|
merge, consolidate or dispose of our assets or the capital stock or assets of any subsidiary; |
| |
| • |
|
pay dividends, make distributions or redeem capital stock in certain circumstances; |
| |
| • |
|
enter into transactions with our affiliates; |
| |
| • |
|
grant liens on our assets or the assets of our subsidiaries; and |
| |
| • |
|
make or repay intercompany loans. |
Our various credit facilities require us to maintain specified financial ratios. Our ability to
meet these financial ratios and tests can be affected by events beyond our control, and we may not
meet those ratios. A breach of any of these restrictive covenants or our inability to comply with
the required financial ratios would result in a default under our various credit facilities or
require us to dedicate a substantial portion of our cash flow from operations to payments on our
indebtedness. If the creditors accelerate amounts owing under our various credit facilities because
of a default and we are unable to pay such amounts, the creditors have the right to foreclose on
our assets.
WE PAY INTEREST ON ALL OF OUR CREDIT FACILITIES AT VARIABLE RATES, RATHER THAN FIXED RATES, WHICH
COULD AFFECT OUR PROFITABILITY.
All of our credit facilities provide for the payment of interest at variable rates. None of our
credit facilities provide for the payment of interest at fixed rates. We can potentially realize
profitability to the extent that we can borrow at a lower rate of interest and charge a higher rate
of interest in our operations. Because our credit facilities are at variable rates, our profit
margins could be depressed or even eliminated by rising interest rates on funds we must borrow.
Rising interest rates could have a materially adverse affect on our operations.
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 have already experienced impairments to our assets of
approximately $3,046,196 in the fiscal year ended December 31, 2007 and as of March 31, 2008. We
may incur additional impairments in the future. 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.
MANAGEMENT OF POTENTIAL GROWTH.
We hope to experience rapid growth which, if achieved, will place a significant strain on our
managerial, operational, and financial systems resources. To accommodate our current size and
manage growth, we must continue to implement and improve our financial strength and our operational
systems, and expand. There is no guarantee that we will be able to effectively manage the expansion
of our operations, or that our systems, procedures or controls will be adequate to support our
expanded operations or that we will be able to obtain facilities to support our growth. Our
inability to effectively manage our future growth would have a material adverse effect on us.
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
our 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.
LACK OF INDEPENDENT DIRECTORS.
We do not have a majority of independent directors on our board of directors and we cannot
guarantee that our board of directors will have a majority of independent directors in the future.
In the absence of a majority of independent directors, our executive officers, which are also
principal stockholders and directors, could establish policies and enter into transactions without
independent review and approval thereof. This could present the potential for a conflict of
interest between our stockholders and us generally and the controlling officers, stockholders or
directors.
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.
POTENTIAL FLUCTUATIONS IN QUARTERLY OPERATING RESULTS.
Our quarterly operating results may fluctuate significantly in the future as a result of a variety
of factors, most of which are outside of our control, including: the demand for our products or
services; seasonal trends in financing; the amount and timing of capital expenditures and other
costs relating to the development of our properties; price competition or pricing changes in the
industry; technical or regulatory difficulties; general economic conditions; and economic
conditions specific to our industry. Our quarterly results may also be significantly impacted by
the accounting treatment of acquisitions, financing transactions or other matters. Particularly at
our early stage of development, such accounting treatment can have a material impact on the results
for any quarter. Due to the foregoing factors, among others, it is likely that our operating
results will fall below our expectations or those of investors in some future quarter.
19
OUR SUCCESS WILL BE DEPENDENT UPON OUR OPERATING PARTNERS’ EFFORTS.
Our success will be dependent, to a large extent, upon the efforts of our operating partners in our
various projects. To the extent that these partners, individually or collectively, fail to develop
projects in a timely or cost-effective manner, our profit margins could be depressed or even
eliminated. If we cannot or do not select appropriate partners for our projects, our profitability
and viability will suffer. The absence of one or more partners who develop projects in a timely or
cost-effective manner could have a material, adverse impact on our operations.
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 Mr. Peter
Shepard, our President, and James W. Creamer, III, our Chief Financial Officer, could have a
material, adverse impact on our operations. We have no written employment agreements with any
officers and directors, including Mr. Shepard or Mr. Creamer. We have not obtained key man life
insurance on the lives of any of these individuals.
LIMITATION OF LIABILITY AND INDEMNIFICATION OF OFFICERS AND DIRECTORS.
Our officers and directors are required to exercise good faith and high integrity in our management
affairs. Our articles of incorporation provides, however, that our officers and directors shall
have no liability to our stockholders for losses sustained or liabilities incurred which arise from
any transaction in their respective managerial capacities unless they violated their duty of
loyalty, did engage in intentional misconduct or gross negligence. Our articles and bylaws also
provide for the indemnification by us of the officers and directors against any losses or
liabilities they may incur as a result of the manner in which they operate our business or conduct
the internal affairs.
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; |
| |
| * |
|
change 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. |
20
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 the resale of our common stock 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 a 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 CASH 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 cash 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
We act as a co-developer, including as a financier, to develop built-to-suit real estate projects
for specific retailers and other tenants who sign long-term leases for use of the property. Our
primary source of revenue is from profits we receive upon the sale of our projects upon completion;
however we also receive revenue from preferred dividends on our invested capital in projects,
management fees we charge to our projects and rental income from our completed projects before
their disposition. In addition, we may share in certain revenues directly related to our projects
with our development partners such as development fees and leasing and sales commissions.
Our activities include raw land acquisition and facility construction. In such a situation, we
provide construction and property management expertise in exchange for an equity interest in the
property. We also
develop projects with construction and permanent financing to be obtained through the efforts of
our management and affiliates. To date, we have hired third party contractors to work on our
projects but plan eventually to use our own staff as well.
21
We are currently focused on the development of build-to-suit single pad, small box retail projects
for national and regional retailers throughout the United States. We operate primarily in the
sale-leaseback market whereby the retailers sign long term leases prior to development and our
majority-owned subsidiary constructs the project with the intent of selling the property to third
party investors upon project completion. Over the past few years we have had development
activities in Arizona, California, Colorado, Florida, Georgia, Indiana, Kansas, South Carolina,
Texas, Utah, Nevada and Washington. To date our projects have included Advanced Auto Parts,
Starbuck’s, Fed Ex Kinko’s, Champps Americana, Boston Pizza, Goddard Schools, AT&T Wireless, Aspen
Dental, IHOP Restaurant, Lone Star Steakhouse & Saloon, Grease Monkey, Family Dollar Stores, and
Checker Auto Parts. We have generally acquired our projects through the relationships of our
development partners.
In all of our transactions with affiliates, we examine current market conditions and attempt to
develop terms and conditions no less favorable than could be negotiated in an arms-length
transaction.
Management continues to assess our capital resources in relation to our ability to fund continued
operations on an ongoing basis. As such, management may seek to access the capital markets to
raise additional capital, which may include efforts to increase our senior and subordinated debt
lines in addition to efforts to raise additional capital through a number of sources, including,
but not limited to, equity or debt offerings, borrowings, or joint ventures.
In addition, we may expand through acquisition. We may not only look at our present industry but we
will reserve the right to investigate and, if warranted, could merge with or acquire the assets or
common stock of an entity actively engaged in business which generates revenues. We will seek
opportunities for long-term growth potential as opposed to short-term earnings. As of the date
hereof, we have no business opportunities under investigation. None of our officers, directors,
promoters or affiliates have engaged in any preliminary contact or discussions with any
representative of any other company regarding the possibility of an acquisition or merger between
us and such other company.
Our principal business address is 700 17th Street, Suite 1200, 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 March 31, 2008
and March 31, 2007.
Our revenues for the quarter ended March 31, 2008 were $1,190,405 compared to revenues for the
quarter ended March 31, 2007 of $227,984. Project sales accounted for $1,164,000 for the quarter
ended March 31, 2008 compared to no project sales for the quarter ended March 31, 2007. Based on
the projects we have classified as “Held for Sale” we would anticipate that project sales will
increase in the next several quarters; however, the timing of these sales is difficult to predict.
We recognize rental income from completed projects that are occupied and held for sale. For the
quarter ended March 31, 2008, we recognized $26,405 in rental income compared to $36,329 for the
quarter ended March 31, 2007. Based on our model, this line item should not grow substantially.
Management fees are currently recognized as we
enter into new projects. We had no revenues from management fees for the quarter ended March 31,
2008 compared to $191,655 in management fees for the quarter ended March 31, 2007.
We recognize cost of sales on projects during the period in which they are sold. The costs of
sales on impaired projects are adjusted downward by the impairment amount taken either in the
current or prior periods. Total cost of sales for the quarter ended March 31, 2008 was $1,164,000
which represents no gross margin due to the fact that the property sold was impaired in the prior
period. We had no cost of sales for the quarter ended March 31, 2007.
22
Selling, general and administrative costs were $688,004 for the quarter ended March 31, 2008
compared to $826,202 for the quarter ended March 31, 2007. This decrease was largely attributable
to lower payroll costs and cost cutting measures instituted by management in the fourth quarter of
2007. These cost savings were offset somewhat by a higher degree of project costs that were
expensed corporately as opposed to capitalized into the project. Management continues to work to
control selling, general and administrative costs.
We had a net loss of $637,359 for the quarter ended March 31, 2008 compared to a net loss of
$407,020 for the quarter ended March 31, 2007. The net loss applicable to common shareholders,
after preferred stock dividends was $714,697 for the quarter ended March 31, 2008 compared to
$489,955 for the quarter ended March 31, 2007. Much of the increase in net loss is due to the
substantial increase in interest expense recognized in the quarter ended March 31, 2008 compared to
the quarter ended March 31, 2007. This increase is due to the larger number of properties
classified as “real estate held for sale” where we no longer capitalize accrued interest into the
cost of the project and begin realizing the expense. As we sell these properties we would
anticipate that the interest cost expensed will decrease.
Our income tax benefit for the quarter ended March 31, 2008 was $377,400 compared to $212,735 for
the quarter ended March 31, 2007. In our assessment of our ability to utilize our loss carry
forward in the future, we increased our deferred tax asset by the full income tax benefit for the
quarter ended March 31, 2008; however, as part of this assessment we also reclassified our full
current tax asset of $965,498 to a deferred tax asset.
Liquidity and Capital Resources
Cash and cash equivalents, were $631,362 on March 31, 2008 compared to $803,204 on March 31,
2007 and $2,035,620 on December 31, 2007.
Cash provided by operating activities was $546,205 for the quarter ended March 31, 2008 compared to
cash used in operating activities of $4,126,219 for the quarter ended March 31, 2007. This change
was primarily the result of fewer projects under construction in the current period in addition to
a large note receivable issued in conjunction with a property sold in December 2007, which was
collected in January 2008. Cash used in operations has typically been substantial, driven by
project funding requirements and we anticipate that it will continue to be significant moving
forward.
Cash used in investing activities decreased to $8,839 for the quarter ended March 31, 2008 compared
to $380,168 for the quarter ended March 31, 2007. We issue promissory notes to our development
partners when we invest earnest money on potential new projects which are retired when we purchase
the land into the subsidiary. The issuance of these notes receivable was substantially lower for
the quarter ended March 31, 2008 compared to March 31, 2007.
Cash used in financing activities was $1,941,624 for the quarter ended March 31, 2008 compared cash
provided by financing activities of $4,212,151 for the quarter ended March 31, 2007. As we
continue to increase our project pipeline we expect that our cash provided by financing activities
will continue to be significant. On March 31, 2008 we had $1,000,000 of availability on our Senior
Subordinated Revolving Notes and we had availability of $29,969,146 on our Senior Credit Facilities
as of March 31, 2008.
Management continues to assess our capital resources in relation to our 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 our operations and continued growth.
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Recently Issued Accounting Pronouncements
We continue to evaluate the impact of SFAS No. 141 (R), “Business Combinations” and SFAS No. 160,
“Noncontrolling Interests in Consolidated Financial Statements,” which are required to be adopted
at the beginning of our 2009 fiscal year.
In September 2006, the Financial Accounting Standards Board (FASB) issued SFAS No. 157, “Fair Value
Measurements” (SFAS No. 157). SFAS No. 157 defines fair value, establishes a framework for
measuring fair value in accounting principles generally accepted in the U.S. and expands
disclosures about fair value measurements. SFAS No. 157 is effective for financial statements
issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal
years. On January 1, 2008 the Company only partially adopted the provisions of SFAS No. 157
because of the issuance of Staff Position (the FSP) FAS 157-2, “Effective Date of FASB Statement
No. 157” which allows companies to delay the effective date of SFAS No. 157 for non-financial
assets and liabilities. The partial adoption had no impact on the Company’s consolidated financial
position and results of operations. Management does not believe that the remaining provisions will
have a material effect on the Company’s consolidated financial position and results of operations
when they become effective on January 1, 2009.
In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and
Financial Liabilities” (SFAS No. 159). SFAS No. 159 permits entities to choose to measure at fair
value many financial instruments and certain other items that are not currently required to be
measured at fair value. SFAS No. 159 is intended to improve financial reporting by allowing
companies to mitigate volatility in reported earnings caused by measuring related assets and
liabilities differently and to do so without having to apply complex hedge accounting provisions.
SFAS No. 159 also establishes presentation and disclosure requirements designed to facilitate
comparisons between entities that choose different measurement attributes for similar types of
assets and liabilities. SFAS No. 159 does not affect any existing accounting literature that
requires certain assets and liabilities to be carried at fair value and does not effect disclosure
requirements in other accounting standards. The Company adopted SFAS No. 159 effective for the
fiscal year beginning December 29, 2007, and the adoption had no impact on the Company’s
consolidated financial position and results of operations.
Seasonality
At this point in our business operations our revenues are not impacted by seasonal demands for our
products or services. As we penetrate our addressable market and enter new geographical regions,
we may experience a degree of seasonality.
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.
24
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.
PART II. OTHER INFORMATION
ITEM 1. 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.
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
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibits
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| 21 |
|
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List of Subsidiaries |
| 31.1 |
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Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/15(d)-14(a) |
| 31.2 |
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Certification of Chief Financial Officer pursuant to Rule 13a-14(a)/15(d)-14(a) |
| 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 |
| 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 report under cover of Form 8K for the fiscal quarter ended March 31, 2008:
February 28, 2008 relating to Form FD Disclosures.
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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: May 14, 2008 |
By: |
/s/ Peter Shepard
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Peter Shepard |
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President, Chief Executive Officer |
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| Dated: May 14, 2008 |
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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26
EXHIBIT INDEX
| |
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|
| Exhibit No. |
|
Description |
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| 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 |
27