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, 2006
--------------
Commission File No. 000-50764
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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 May 4, 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 May 4, 2006) was approximately
$3,161,531.
Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]
FORM 10-QSB
Across America Real Estate Corp.
TABLE OF CONTENTS
Page
----
PART I FINANCIAL INFORMATION
Item 1. Financial Statements for the period ended March 31, 2006
Consolidated Balance Sheet(Unaudited) 3
Consolidated Statements of Operations (Unaudited) 4
Consolidated Statements of Cash Flows (Unaudited) 5
Item 2. Management's Discussion and Analysis and Plan of Operation 17
Item 3. Controls and Procedures 23
PART II OTHER INFORMATION
Item 1. Legal Proceedings 24
Item 2. Changes in Securities 24
Item 3. Defaults Upon Senior Securities 24
Item 4. Submission of Matters to a Vote of Security Holders 24
Item 5. Other Information 24
Item 6. Exhibits and Reports on Form 8-K 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.
2
ITEM 1. FINANCIAL STATEMENTS
Across America Real Estate Corp
Consolidated Balance Sheet
(Unaudited) March 31, 2006
________________________________________________________________________________
Assets
Cash $ 296,110
Restricted cash (Note 1) 402,098
Deposits held by an affiliate (Note 4) 467,050
Accounts Receivable, net (Note 1) 54,428
Property and equipment, net of accumulated depreciation 27,740
Real estate held for sale (Note 2) 4,997,678
Construction in progress (Note 2) 1,435,946
Land held for development (Note 2) 5,124,374
Deposits 32,166
------------
Total assets $ 12,837,590
============
Liabilities and Shareholders' Equity
Liabilities
Accounts payable $ 238,243
Accrued liabilities 98,877
Current tax liability (Note 7) 3,092
Indebtedness to related party (Note 3) 9,325,255
Note payable (Note 10) 2,935,261
Capital lease obligation (Note 8) 11,651
Security deposit 10,000
Deferred tax liability (Note 7) 4,451
------------
Total liabilities $ 12,626,830
------------
Shareholders' equity
Noncontrolling interest (Note 14) (104,603)
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 137,388
------------
Total shareholders' equity $ 210,760
------------
Total liabilities and shareholders' equity $ 12,837,590
============
See accompanying notes to consolidated financial statements
3
Across America Real Estate Corp
Consolidated Statements of Operations
(Unaudited)
________________________________________________________________________________
Three Months Ended
March 31,
----------------------------
2006 2005
------------ ------------
Revenue:
Sales $ 1,723,000 $ --
Rental income 125,078 --
Management fees 27,000 --
------------ ------------
Total revenue 1,875,078 --
------------ ------------
Operating expenses:
Cost of Sales 1,462,852 --
Selling, general and administrative 281,461 80,382
------------ ------------
Total Operating expenses 1,744,313 80,382
------------ ------------
Income/(loss) from operations 130,765 (80,382)
Non-operating expense:
Interest Expense (93,712) (8,186)
Income/(loss) before income taxes
------------ ------------
and noncontrolling interest 37,053 (88,568)
Income tax provision (Note 7) 19,031
------------ ------------
Income/(loss) before noncontrolling interest 56,084 (88,568)
Noncontrolling interest in income of
consolidated subsidiaries (100,101) 1,915
------------ ------------
Net loss $ (44,017) $ (86,653)
============ ============
Basic and diluted income/(loss) per share $ (0.00) $ (0.01)
------------ ------------
Basic and diluted weighted average common
shares outstanding 16,036,625 16,036,625
============ ============
See accompanying notes to consolidated financial statements
4
Across America Real Estate Corp.
Statements of Cash Flows
(Unaudited)
________________________________________________________________________________
Three Months Ended
March 31,
--------------------------
2006 2005
----------- -----------
Cash flows from operating activities:
Net loss $ (44,017) $ (86,653)
Adjustments to reconcile net income to net cash used by operating activities:
Depreciation 1,598 87
Changes in current assets and current liabilities: --
Construction in progress (268,131) (2,206,809)
Real estate held for sale (141,888) --
Land held for development (129,956) (1,275,546)
Accounts receivable 51,197
Accounts payable and accrued liabilities 87,603 21,587
Indebtedness to related party 100,000 --
----------- -----------
Net cash used in operating activities (343,594) (3,547,334)
Cash flows from investing activities:
Payments for deposits (13,306) (5,302)
Payments for property and equipment (150) 235
Issuance of notes receivable 13,110 (285,000)
Proceeds from repayment of notes receivable 10,000 --
Security deposit -- --
----------- -----------
Net cash provided by (used in) investing activities 9,654 (290,067)
Cash flows from financing activities:
Proceeds from related party loans (Note 3) 1,303,957 3,565,238
Repayment of related party loans (Note 3) (494,183) --
Proceeds from note payable (Note 3) 703,205 --
Repayment of note payable (Note 3) (919,543) --
Repayment of lease obligation (602)
----------- -----------
Net cash provided by financing activities 592,834 3,565,238
----------- -----------
Net change in cash 258,894 (272,163)
Cash, beginning of period 439,314 527,390
----------- -----------
Cash, end of period $ 698,208 $ 255,227
=========== ===========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Income taxes $ 27,921 $ 1,000
=========== ===========
Interest $ 46,188 $ --
=========== ===========
See accompanying notes to 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:
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%
L-S Corona Pointe, LLC ("L-S Corona") 50.01%
Cross Country Properties III, LLC ("CCPIII") 50.00%
All significant intercompany accounts and transactions have been eliminated in
consolidation.
6
ACROSS AMERICA REAL ESTATE CORP.
Notes to Consolidated Financial Statements
(Unaudited)
(2) Real Estate Development Projects
Projects Sold:
Firestone
---------
On March 9, 2005, we (through our subsidiary, AARD-TSD-CSK Firestone, LLC,
"Firestone") entered into an arrangement with Trail Star Development, LLC
("Trail Star"), an unaffiliated builder and developer of Checker Auto Parts
automotive stores. We are currently developing a Checker Auto Parts located in
Firestone, Colorado. Trail Star owned 49% of Firestone and we owned 51%. The
project was sold on March 24, 2006. 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.
Projects Currently in Development Process or For Sale as of March 31, 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. Aquatique
operates a Kwik Car Wash in the facility. GDBA owned 60% of Aquatique Industries
at the time the lease was executed.
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.
7
ACROSS AMERICA REAL ESTATE CORP.
Notes to Consolidated Financial Statements
(Unaudited)
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.
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.
8
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.
(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 March 31, 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".
9
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 first
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 March 31, 2006 we owed GDBA $8,596,631 in principal and accrued
interest of $723,874.
In the first quarter of 2006, we received $1,303,957 in loans for our
construction projects under our loan agreement with GDBA. We repaid a total of
$494,183 during this period to this shareholder. In the first quarter of 2005,
we received $3,401,093 in loans for our construction projects under our loan
agreement with GDBA. We repaid a total of $-0- 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 $467,050 in earnest money deposits outstanding at March
31, 2006. These deposits were held by affiliates and all were collateralized by
promissory notes from our development partners.
10
ACROSS AMERICA REAL ESTATE CORP.
Notes to Consolidated Financial Statements
(Unaudited)
(5) Property and Equipment
The Company's property and equipment consisted of the following at March 31,
2006:
Equipment .............................. $ 20,443
Furniture and fixtures.................. 5,938
Computers and related equipment ........ 5,463
-------
31,844
Less accumulated depreciation .......... (4,104)
-------
$ 27,740
=======
Depreciation expense totaled $1,598 and $87 for the quarters ended March 31,
2006 and March 31, 2005 respectively.
(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 March 31, 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.
11
ACROSS AMERICA REAL ESTATE CORP.
Notes to Consolidated Financial Statements
(Unaudited)
(7) Income Taxes
----------------
The provision for income taxes consists of the following:
Quarters ended March 31,
------------------------
2006 2005
-------- --------
Current:
Federal .............................. ($23,482) $ 463
State ................................ 113
-------- --------
($23,482) $ 576
======== ========
Deferred:
Federal ............................. $ 4,451 $ --
State ................................ -- --
-------- --------
Total income tax provision ............. ($ 19,031) $ 576
========= ========
The reconciliation of the income tax expense computed at U.S. federal statutory
rates to the provision for income taxes is as follows:
Quarters ended March 31,
------------------------
2006 2005
--------- -------
Tax at US federal statutory rates ....... $ 3,092 $ 463
State income taxes, net of federal ...... - 113
Change in beginning deferred balance .... (22,123) --
--------- -------
Total income tax expense ............. $ (19,031) $ 576
========= =======
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 tax liability:
Depreciation ...................... $ 4,451
-------
Total net deferred tax liability ....... $ 4,451
=======
As of March 31, 2006, no valuation allowance has been provided based on the
Company's assessment of the future reliability 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 $ 37,314
Lessor
------
The Company, as 100% owner of Riverdale Lot 3A, LLC, receives rental income 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.
13
ACROSS AMERICA REAL ESTATE CORP.
Notes to Consolidated Financial Statements
(Unaudited)
Future minimum rental incomes from property held for sale are as follows:
December 31,
------------
2006 $ 375,235
2007 500,314
2008 500,314
2009 500,314
2010 500,314
----------
$2,376,491
There is no allowance made as of March 31, 2006 for uncollectible rent as the
Company believes all rents to be collectible.
(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 $ 2,079
2007 2,772
2008 2,772
2009 2,772
2010 2,079
$12,474
Less imputed interest 823
---------
$ 11,651
(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
14
ACROSS AMERICA REAL ESTATE CORP.
Notes to Consolidated Financial Statements
(Unaudited)
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.
As of March 31, 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 March 31, 2006, this note had an outstanding principal amount of $1,711,301
and total accrued interest of $41,931.
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 March 31, 2006, this note had an
outstanding principal balance of $1,182,029.
As of March 31, 2006 our total outstanding principal due to Vectra Bank and our
annual schedule of repayment is as follows:
December 31,
------------
2006 $ -0-
2007 2,893,330
-----------
$2,893,330
(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.
15
ACROSS AMERICA REAL ESTATE CORP.
Notes to Consolidated Financial Statements
(Unaudited)
(12) Capitalized Interest and Interest Expense
For the period ended March 31, 2006 the Company has recognized $93,712 interest
expense that is not related to capitalized projects and $114,986 additional
capitalized interest expense that is included in either Construction in Progress
or Property Held for Sale on the balance sheet March 31, 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 May 4, 2006, no such contracts have been
executed on either instrument and each remain outstanding only as letters of
intent.
(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.
Real Estate Projects
-------------------------------------------------------------------
Cypress American
Firestone Sound Stonegate Bluffton Fork Total
-------- -------- -------- -------- -------- --------
Noncontrolling Interest Balance,
January 1, 2006 -- (4,594) 9,843 (478) (269) 4,502
Earnings allocated to
Noncontrolling Interest 97,283 -- 2,818 -- -- 100,101
Earnings disbursed/accrued for
Noncontrolling Interest -- -- -- -- -- --
-------- -------- -------- -------- -------- --------
Noncontrolling Interest Balance,
March 31, 2006 $ 97,283 $ (4,594) $ 12,661 $ (478) $ (269) $104,603
======== ======== ======== ======== ======== ========
16
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS AND PLAN OF OPERATION
The following discussion of our financial condition and results of operations
should be read in conjunction with, and is qualified in its entirety by, the
consolidated financial statements and notes thereto included in, Item 1 in this
Quarterly Report on Form 10-QSB. This item contains forward-looking statements
that involve risks and uncertainties. Actual results may differ materially from
those indicated in such forward-looking statements.
Forward-Looking Statements
--------------------------
This Quarterly Report on Form 10-QSB and the documents incorporated herein by
reference contain forward-looking statements that have been made pursuant to the
provisions of the Private Securities Litigation Reform Act of 1995. Such
forward-looking statements are based on current expectations, estimates, and
projections about our industry, management beliefs, and certain assumptions made
by our management. Words such as "anticipates", "expects", "intends", "plans",
"believes", "seeks", "estimates", variations of such words, and similar
expressions are intended to identify such forward-looking statements. These
statements are not guarantees of future performance and are subject to certain
risks, uncertainties, and assumptions that are difficult to predict; therefore,
actual results may differ materially from those expressed or forecasted in any
such forward-looking statements. Unless required by law, we undertake no
obligation to update publicly any forward-looking statements, whether as a
result of new information, future events, or otherwise. However, readers should
carefully review the risk factors set forth herein and in other reports and
documents that we file from time to time with the Securities and Exchange
Commission, particularly the Report on Form 10-SB, and future Annual Reports on
Form 10-KSB and any Current Reports on Form 8-K.
Risk Factors
------------
You should carefully consider the risks and uncertainties described below; and
all of the other information included in this document. Any of the following
risks could materially adversely affect our business, financial condition or
operating results and could negatively impact the value of your investment.
WHILE WE HAVE GENERATED A MODEST PROFIT IN OUR LAST TWO FISCAL YEARS, WE WERE
UNPROFITABLE IN THE MOST RECENT FISCAL QUARTER. THERE IS NO GUARANTEE THAT WE
WILL CONTINUE TO BE PROFITABLE.
Our revenues for the fiscal year ended December 31, 2005 were $7,951,962. We had
net income of $77,666 for the fiscal year ended December 31, 2005. Our revenues
for the fiscal year ended December 31, 2004 were $1,787,922. We had net income
of $25,686 for the fiscal year ended December 31, 2004. However, for the three
months ended March 31, 2006, we had an operating loss of $44,017. 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.
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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.
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.
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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 Mr. Alexander V. Lagerborg, our
President, could have a material, adverse impact on our operations. We have no
written employment agreements with any officers and directors, including Mr.
Lagerborg. 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;
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* 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.
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.
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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.
Results of Operations
---------------------
The following discussion involves our results of operations for the quarters
ending March 31, 2006 and March 31, 2005. Our revenues for the three months
ended March 31, 2006 were $1,723,000 was derived from the sale of a Checker Auto
Parts store from our TSD CSK Firestone, LLC on March 24, 2006. We also had
rental income of $125,078 for the quarter, which was earned from completed
properties that are currently for sale, and we had $27,000 in management fees
for the quarter. We had no revenues for the three months ended March 31, 2005.
Cost of Sales for the three months ended March 31, 2006 were $1,462,852 which
was entirely associated with the cost of our Checker Auto Parts store in
Firestone, Colorado. Gross margins for the quarter 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 three months
ended March 31, 2005.
Selling, general and administrative costs were $281,461 for the quarter ended
March 31, 2006, compared to $80,382 for the quarter ended March 31, 2005. This
increase was 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 $44,017 for the three months ended March 31, 2006 compared
to a net loss of $86,653 for the three months ended March 31, 2005. This
decrease in net loss was due to the increase in revenues year over year,
although partially 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 March 31, 2006 compared to March 31, 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.
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Liquidity and Capital Resources
-------------------------------
Our cash balance on March 31, 2006 was $698,208, which included $296,110 in
operating cash and $402,098 of restricted capital that was designated for
specific projects and could not be used for our operations. This compares to a
cash balance of $255,227 on March 31, 2005. 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 three months ended March 31, 2006
compared to the three months ended March 31, 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.
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.
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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.
ITEM 3. CONTROLS AND PROCEDURES
Within the 90 days prior to the date of this report, our Chief Executive Officer
and our Chief Financial Officer evaluated the effectiveness of the design and
operation of our disclosure controls and procedures pursuant to Rule 13a-15B
under the Securities Exchange Act of 1934. Based on their review of our
disclosure controls and procedures, they have concluded that our disclosure
controls and procedures are effective in timely alerting each of them to
material information relating to us that is required to be included in our
periodic SEC filings. Further, there were no significant changes in the internal
controls or in other factors that could significantly affect these disclosure
controls after the evaluation date and the date of this report. Nor were there
any significant deficiencies or material weaknesses in such disclosure controls
and procedures requiring corrective actions. As a result, no corrective actions
were taken.
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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
Not Applicable
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibits
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 March 31, 2006: March 7, 2006, relating to the resignation of a director
and appointment of a new director; and January 11, 2006 relating to letters of
intent.
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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.
ACROSS AMERICA REAL ESTATE CORP.
Dated: MAY 11, 2006 By: /s/ Alexander V. Lagerborg
------------------- ----------------------------------
Alexander V. Lagerborg
President, Chief Executive Officer,
and Director
Dated: MAY 11, 2006 By: /s/ James W Creamer III
---------------- ---------------------------------
James W Creamer III
Treasurer, Chief Financial Officer
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