SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
- --------------------------------------------------------------------------------
[X] Quarterly Report Under Section 13 or
15(d) of the Securities Exchange Act of
1934
For the Quarterly Period Ended March 31, 1999
or
[ ] Transition Report Under Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the Transition Period from ------------to------------
- --------------------------------------------------------------------------------
Commission File Number 33-87570
I.R.S. Employer Identification Number 41-1793975
American Church Mortgage Company
Incorporated Under the Laws of the State of Minnesota
10237 Yellow Circle Drive
Minnetonka, MN 55343
Telephone: (612) 945-9455
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
requirements for the past 90 days. Yes X No o o
The number of shares outstanding of the Registrant's stock as of April 30,
1999 was:
1,189,967 Shares of Common Stock Outstanding
1
<PAGE>
AMERICAN CHURCH MORTGAGE COMPANY
INDEX
Page
No.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Balance Sheets March 31, 1999 and 1998................. 3
Statements of Operations
Three Month Periods Ended March 31, 1999 and 1998.... 4
Statements of Cash Flows
Three Months Ended March 31, 1999 and 1998........... 5
Statement of Stockholder's Equity...................... 6
Notes to Financial Statements ......................... 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations ................... 10
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders............. 12
Item 6. Exhibits and Reports on Form 8-K ............................... 12
Signatures............................................. 12
2
<PAGE>
ITEM 1. FINANCIAL STATEMENTS
AMERICAN CHURCH MORTGAGE COMPANY
UNAUDITED BALANCE SHEETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
March 31, March 31,
1999 1998
Assets:
Current Assets
<S> <C> <C>
Cash and Cash Equivalents.............................. $ 2,410,735 $ 1,080.850
Current Maturities of Loans Receivable................ 156,748 114,819
Current Maturities of Bonds Receivable................. 24,000 - 0 -
----------- -----------
Total current Assets: 2,591,483 1,195,669
Loans Receivable, net of current maturities............ 6,684,045 5,367,610
Bonds receivable....................................... 1,857,144 131,722
Deferred Tax Asset..................................... 40,000 33,000
Organizational Expenses, (net of accumulated
amortization March 31, 1999, $1,466; March
31, 1998, $1,163).................................... 86 389
----------- ----------
Total Assets: $ 11,172,758 $ 6,728,390
=========== =========
Liabilities and Shareholders' Equity:
Current Liabilities:
Accounts Payable....................................... $ 26,295 $ 234,295
Management Fee Payable................................. 22,384 14,130
Deferred Income........................................ 22,963 69,473
Dividends Payable...................................... 217,828 142,743
---------- ---------
Total current Liabilities:......................... 289,470 460,641
Deferred Income........................................ 104,193 16,473
Shareholders' Equity
Common stock, par value $.01 per share; authorized
30,000,000 shares; issued and outstanding 1,183,879
as of March 31, 1999, 692,992 shares as of
March 31, 1998.................................... 11,839 6,930
Additional Paid in Capital............................. 10,874,383 6,308,630
Net Income .......................................... (107,127) (64,284)
----------- ---------
Total Shareholders' Equity: 10,779,095 6,251,276
----------- ---------
$ 11,172,758 $ 6,728,390
=========== =========
</TABLE>
Notes to Financial Statements are an integral part of this Statement.
3
<PAGE>
AMERICAN CHURCH MORTGAGE COMPANY
UNAUDITED STATEMENTS OF OPERATIONS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended
March 31, March 31,
1999 1998
Revenues
<S> <C> <C>
Interest Income Loans........................... $ 164,508 $ 131,755
Interest Income Other....................... 44,794 8,281
Capital Gains Realized.......................... 1,460 1,194
Origination Income.............................. 6,536 4,410
-------- -------
Total Revenues: 217,298 145,640
Expenses
Professional fees............................... 24,715 14,968
Director fees................................... 800 800
Amortization.................................... 76 76
Other........................................... 3,313 2,318
-------- ---------
Total Expenses: 28,904 18,162
Provision for Income Taxes........................... - 0 - - 0 -
---------- ---------
Net Income .......................................... $ 188,394 $ 127,478
========= =========
Income (Loss) Per Common Share....................... $ .16 $ .22
Weighted Average Common Shares
Outstanding.................................... 1,160,225 591,640
Dividends Declared................................... $ 217,828 $ 142,743
</TABLE>
Notes to Financial Statements are an integral part of this Statement.
4
<PAGE>
AMERICAN CHURCH MORTGAGE COMPANY
UNAUDITED STATEMENTS OF CASH FLOWS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Three For the Three
Months Ended Months Ended
March 31, March 31,
1999 1998
Cash Flows From Operating Activities
<S> <C> <C>
Net Income $ 188,394 $ 127,478
Adjustments to reconcile net income (loss) to net cash
used in operating activities:
Deferred income taxes - 0 - - 0 -
Amortization 76 76
Change in assets and liabilities:
Deferred income 12,976 7,517
Accounts receivable 28,777 - 0 -
Increase (Decrease) in accounts payable 35,920 232,935
---------- ---------
Net cash used in operating activities 266,143 368,006
Cash Flows From Investing Activities
Investment in mortgage loans (990,000) (595,000)
Collections of mortgage loans 381,067 24,879
Investment in bonds (857,147) (5,913)
---------- --------
Net cash used for investing activities (1,466,080) (576,034)
Cash Flows From Financing Activities
Proceeds from stock offering 902,146 1,124,962
Dividends Paid (233,004) (127,899)
---------- --------
Net cash from (used for) financing activities 669,142 997,063
Net increase (decrease) in cash (530,795) 789,035
Cash
Beginning of period 2,941,530 291,815
---------- ----------
End of period $ 2,410,735 $ 1,080,850
========= ==========
Supplemental Schedule of Noncash
Financing Activities:
Dividends declared but not paid $ 217,828 $ 142,743
--------- ---------
</TABLE>
Notes to Financial Statements are an integral part of this Statement.
5
<PAGE>
AMERICAN CHURCH MORTGAGE COMPANY
UNAUDITED STATEMENT OF SHAREHOLDERS' EQUITY
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Additional
Common Stock Paid-In Accumulated
Shares Amount Capital Deficit
<S> <C> <C> <C> <C>
Balance, December 31, 1998 1,087,646 $ 10,876 $ 9,973,200 $ (77,693)
Issuance of 963 shares of
common stock, net of
offering costs 96,233 963 901,183
Net Income 188,394
Dividends declared (217,828)
Balance, March 31, 1999(unaudited) 1,183,879 $ 11,839 $10,874,383 $ (107,127)
</TABLE>
Notes to Financial Statements are an integral part of this Statement.
6
<PAGE>
AMERICAN CHURCH MORTGAGE COMPANY
NOTES TO UNAUDITED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying unaudited financial statements have been prepared in accordance
with the instructions for interim statements and, therefore, do not include all
information and disclosures necessary for a fair presentation of results of
operations, financial position, and changes in cash flow in conformity with
generally accepted accounting principles. However, in the opinion of management,
such statements reflect all adjustments (which include only normal recurring
adjustments) necessary for a fair presentation of the financial position,
results of operations, and cash flows for the period presented.
The unaudited consolidated financial statements of the Company should be read in
conjunction with its December 31, 1998, audited financial statements included in
the Company's Annual Report on Form 10-KSB, as filed with the Securities and
Exchange Commission for the year ended December 31, 1998.
Nature of Business
American Church Mortgage Company, a Minnesota corporation, was incorporated on
May 27, 1994. The Company was organized to engage in the business of making
mortgage loans to churches an other nonprofit religious organizations throughout
the United States, on terms that it establishes for individual organizations.
Accounting Estimates
Management uses estimates and assumptions in preparing these financial
statements in accordance with generally accepted accounting principals. Those
estimates and assumptions affect the reported amounts of assets and liabilities,
the disclosure of contingent assets and liabilities, and the reported revenues
and expenses. Actual results could differ from those estimates.
Cash
The Company considers all highly liquid debt instruments purchased with a
maturity of three months or less to be cash equivalents.
The Company maintains some cash in bank deposit accounts which, at times, may
exceed federally insured limits. The Company has not experienced any losses in
such accounts.
Marketable Securities
The Company accounts for its debt securities under Financial Accounting
Standards No. 115, "Accounting for Certain
Investments in Debt and Equity Securities."
The Company classifies its marketable debt securities as "held-to-maturity"
because it has the intent and ability to hold the securities to maturity.
Securities classified as held-to-maturity are carried at amortized cost.
Allowance for Loans Receivable
The Company follows a policy of providing an allowance for loans receivable.
However, at March 31, 1999, management believes the loans receivable to be
collectible in all material respects, and therefore, no allowances is presently
provided.
Organizational Expenses
Organizational expenses are stated at cost and are amortized using the
straight-line method over five years.
Deferred Income
Deferred income represents loan origination fees which are recognized over the
life of the loan as an adjustment to the yield on the loan.
7
<PAGE>
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
Income Taxes
Income taxes are provided for the tax effects of transactions reported in the
financial statements and consist of taxes currently due plus deferred taxes
related primarily to differences in recognition of income from loan origination
fees for financial and income tax reporting. Deferred taxes are recognized for
operating losses that are available to offset future taxable income.
The Company has elected to be taxed as a Real Estate Investment Trust (REIT).
Accordingly, the Company will not be subject to Federal income tax to the extent
of distributions to its shareholders if the Company meets all the requirements
under the REIT provisions of the Internal Revenue Code.
Income Per Common Share
No adjustments were made to income in either year for the purpose of calculating
earnings per share. Stock options were not included in computing earnings per
share because their effects were antidilutive.
2. MORTGAGE AND BONDS PORTFOLIO
As of March 31, 1999, the Company had seventeen first mortgage loans receivable
totaling $6,232,750 in principal amount and three second mortgage loans
aggregating $745,000 in principal amount. The loans bear interest ranging from
9.85% to 12.00%
The Company also has purchased $1,907,000 principal amount mortgage backed bonds
issued by churches. The bonds pay either quarterly or semi-annual interest
ranging from 6.35% to 10.70%. The combined principal of $1,907,000 is due at
various maturity dates between June 1, 1999 and February 1, 2019.
The maturity schedule for mortgage loans and bonds receivable as of March 31,
1999 is as follows:
<TABLE>
<CAPTION>
Mortgage Loans Bond Portfolio
<S> <C> <C>
1999 $ 112,512 $ 12,000
2000 169,681 17,000
2001 189,179 125,000
2002 217,075 21,000
2003 235,295 23,000
Thereafter 5,917,051 1,709,000
--------- ---------
1,907,000
Less discounts from par (25,856)
Total $6,840,793 $1,881,144
========= =========
</TABLE>
3. STOCK OPTION PLAN
The Company has adopted a Stock Option Plan granting each member of the Board of
Directors and the president of the Advisor (Note 4) an option to purchase 3,000
shares of common stock annually upon their re-election. The purchase price of
the stock will be the fair market value at the grant date. On November 15, 1994,
the Company granted options to purchase an aggregate of 21,000 shares of common
stock at $10 per share. These options became exercisable November 15, 1995 and
expire November 15, 1999. No options have been exercised as of March 31, 1999.
The Company has chosen to account for stock based compensation in accordance
with APB Opinion 25. Management believes that the disclosure requirements of
Statement of Financial Accounting Standards No. 123 are not material to its
financial statements.
8
<PAGE>
4. TRANSACTIONS WITH AFFILIATES
The Company has an Advisory Agreement with Church Loan Advisors, Inc.,
Minnetonka, Minnesota (Advisor). The Advisor is responsible for the day-to-day
operations of the Company and provides administrative services and personnel.
Upon non-renewal or termination of the Advisory Agreement, the Company is
required to pay the Advisor a termination fee equal to two percent of the value
of the average invested assets of the Company as of the date of termination,
subject to limitations set forth in the Advisory Agreement.
The Company pays the Advisor an annual base management fee of 1.25 percent of
average invested assets (generally defined as the average of the aggregate book
value of the assets invested in securities and equity interests in and loans
secured by real estate), which is payable on a monthly basis. The Advisor will
also receive one-half of the origination fees paid by a mortgage loan borrower
in connection with a mortgage loan made or renewed by the Company. The Company
paid advisory and origination fees from January 1 through March 31, 1999 of
$22,384.
The Advisor and the Company are related through common ownership and common
management. See Note 5.
5. PUBLIC OFFERING OF THE COMPANY'S COMMON STOCK
The Company filed a Registration Statement with the Securities and Exchange
Commission for a public offering of its common stock in 1997. The Company
offered to sell 1,500,000 shares of its common stock at a price of $10 per
share. The Offering was underwritten by a managing underwriter (an affiliate of
the Advisor) and a co-underwriter on a "best efforts" basis, and no minimum sale
of stock was required The stock sale commenced on September 26, 1997and
concluded January 22, 1999. A total of 799,759 shares were sold in the Company's
public offering.
The Company intends to file a Registration Statement with the Securities and
Exchange Commission for a third public offering of its common stock in 1999.
6. FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair values of the Company's financial instruments, none of which
are held for trading purposes, are as follows at March 31, 1999 and 1998:
<TABLE>
<CAPTION>
March 31,
1999 1998
-------------------------- -------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
<S> <C> <C> <C> <C>
Cash and equivalents $ 2,410,735 $ 2,410,735 $ 1,080,850 $ 1,080,850
Loans receivable 6,840,793 6,840,793 5,482,429 5,482,429
Bonds receivable 1,881,144 1,881,144 131,722 131,722
</TABLE>
The carrying value of cash and equivalents approximates fair value. The fair
value of the loans receivable and the bonds receivable are estimated by
discounting future cash flows using current discount rates that reflect the
risks associated with similar types of loans.
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
AMERICAN CHURCH MORTGAGE COMPANY
Plan of Operation
The Company was founded in May 1994, began a "best efforts" offering of
its common stock on July 11, 1995, and commenced active business operations on
April 15, 1996 after completion of the "Minimum Amount" in its initial public
offering (described below). Consequently, for the years ended December 31, 1994
and 1995, the Company had no operating revenues, and expenses were limited to
organizational and offering-related costs.
On July 11, 1995, the Securities and Exchange Commission declared
effective the Company's offering of 2,000,000 common shares at a price of $10.00
per share. The Company achieved the Minimum Offering of at least 200,000 shares
($2,000,000) sold to not less than 100 individuals (the "Minimum Offering") on
April 15, 1996. Until the Minimum Offering was achieved, the Company could not
commence its active business of making mortgage loans to churches. Consequently,
business operations from inception (May 27, 1994) to completion of the Minimum
Offering (April 15, 1996) were limited to daily business organizational efforts,
activities relating to the offering, reviewing potential candidates for church
mortgage loans to be made by the Company once the Minimum Offering was achieved,
and conducting informational meetings with brokers and broker-dealers identified
to the Company by the Dealer/Manager--American Investors Group, Inc.
("American"), an affiliate of the Company. The Company concluded its initial
public offering on November 8, 1996. As of such date the Company had sold
335,481 shares to approximately 281 individuals, not including 20,000 shares
($200,000) previously purchased by the Company's initial shareholder -- DRM
Holdings, Inc., an affiliate of the Company.
On September 26, 1997, the Securities and Exchange Commission declared
effective the Company's second public offering of 1,500,000 common shares at a
price of $10.00 per share ($15,000,000) under SEC File 333-27601. The Offering
was co-underwritten by American Investors Group, Inc. and LaSalle St.
Securities, Inc., ("LaSalle"). American acted in the capacity of the Managing
Underwriter and is an affiliate of the Company. The Offering was conducted on
a"best-efforts" basis pursuant to applicable rules of the Securities and
Exchange Commission. The Company concluded it second public offering on January
22, 1999. The Company sold 799,759 shares during its second public offering. As
of March 31, 1999 the Company has 1,183,879 shares outstanding and approximately
775 individual shareholders.
Between the date upon which the Company began active business
operations (April 15, 1996), and March 31, 1999, the Company has made 28 loans
to 25 churches in the aggregate amount of $8,489,750, with the average size
being $303,205. Of the 28 loans made by the Company, five loans totaling
$1,442,000, have been repaid by the borrowing churches. The Company has also
purchased in the secondary market for $1,825,443 (which includes $407 in accrued
interest) First Mortgage Church Bonds in the face amount of $1,840,300 and
purchased for $72,800 Second Mortgage Church Bonds in the face amount of
$100,000. Two of the First Mortgage Church Bonds in the face amount of $33,300
have been called for redemption by the issuing organizations. Funding of
additional first mortgage loans is expected to continue on an on-going basis as
the Company's investable assets become available through (i) the sale of
additional shares in future public offerings; (ii) prepayment and repayment at
maturity of existing loans; (iv) borrowed funds; and (v) dividends reinvested
under the Company's Dividend Reinvestment Plan.
Results of Operations
During the three month period ended March 31, 1999 total assets of the
Company increased by $906,431 due primarily to sale of the Company's common
stock. Total liabilities increased by $33,720 due to deferred income and
dividends declared but not yet paid as of March 31, 1999. During the three month
period ending March 31, 1999 the Company funded two additional first mortgage
loan and one second mortgage loan to churches for an aggregate amount of
$755,000 and $235,000 respectively. In addition, the Company purchased $863,000
principal amount of first mortgage church bonds for a purchase price of
$855,720. All loans made by the Company range in interest rate charged to the
borrowers from 9.85% for fixed 20 year amortized loans, 11.25% for fixed 15 year
amortized loans to 12.00% for a 5-year interim loan. As of March 31, 1999, the
average, principal-adjusted interest rate on the Company's portfolio of loans
was 10.83%. The Company's portfolio of bonds has an average current yield of
9.39% .
Net operating income for the Company's three month period ended March
31, 1999 was $188,394 on total revenues of $217,298. Interest income earned on
the Company's portfolio of loans was $164,508. Excluded from revenue for the
three month period ended March 31, 1999 is $19,479 of origination income, or
"points," received by the Company, recognition of which under generally accepted
accounting principles ("GAAP") must be deferred over the expected life of each
loan. However, under tax principles, origination income is recognized in the
period received. Accordingly, because the status of the Company
10
<PAGE>
as a real estate investment trust requires, among other things, the distribution
to shareholders of at least 95% of "Taxable Income," the dividends declared and
paid to Shareholders for the quarter ended March 31, 1999 included origination
income even though it is not recognized in its entirety for the period under
GAAP.
The Company's Board of Directors declared dividends of $.1875 for each
share held of record on March 31, 1999. During the Company's public offering,
dividends are computed and paid to each Shareholder based on the number of days
during a quarter that the Shareholder owned his or her shares. The dividend,
which was paid April 30, 1999 represents a 7.50% annual rate of return on each
share of common stock owned and purchased for $10 per share.
Total assets of the Company for the three month period ended March 31,
1998 increased $906,431 to $11,172,758 primarily as a result of the sale and
issuance of the Company's common stock pursuant to its current public offering,
the proceeds of which were deployed into three new mortgage loans, church bonds
purchased in the secondary market, and cash and cash equivalent money market
obligations. Shareholders' Equity rose $872,711 to $10,779,095 for the same
reason. Company liabilities at the end of the three month period ended March 31,
1999 are primarily comprised of a "Deferred Income", reflecting the practice of
the Company of recognizing its origination income -- fees charged to borrowers
at the commencement of its loans -- over the life of each loan and dividends
declared as of March 31, 1999 but not yet paid.
Liquidity and Capital Resources
The Company's revenue is derived principally from interest income, and
secondarily, origination fees and renewal fees generated by mortgage loans made
by it. The Company also earns income through interest on funds that are invested
pending their use in funding mortgage loans or distributions of dividends to its
Shareholders, and on income generated on church bonds it may purchase and own.
The Company generates revenue through (i) permitted temporary investments of the
net proceeds from the sale of the shares, and (ii) implementation of its
business plan of making mortgage loans to churches and other non-profit
religious organizations. The principal expenses of the Company will be Advisory
Fees, legal and accounting fees, communications costs with its Shareholders, and
the expenses of its stock transfer agent, registrar and dividend reinvestment
agent.
The Company's future capital needs are expected to be met by (i)
additional sale of its shares to the public (ii) prepayment, repayment at
maturity and renewal of mortgage loans made by the Company, and (iii) borrowed
funds. The Company believes that the "rolling" effect of mortgage loans
maturing, together with dividends reinvested under the Company's Dividend
Reinvestment Plan, will provide a supplemental source of capital to fund its
business operations in future years. Nevertheless, the Company believes that it
may be desirable, if not necessary, to sell additional shares of common stock,
in order to enhance its capacity to make mortgage loans on a continuous basis.
There can be no assurance that the Company will be able to raise additional
capital on terms acceptable for such purposes. Although the Company may borrow
funds in an amount not to exceed 50% of its Average Invested Assets in order to
increase its lending capacity, it has no present intention of doing so, nor has
it secured a source for such borrowing.
11
<PAGE>
PART II
OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders during the
quarter ended March 31, 1999.
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits filed with Form 10-QSB
None
b) Reports on Form 8-K
None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused the report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Dated: May 14, 1999
AMERICAN CHURCH MORTGAGE COMPANY
By: /s/ David G. Reinhart
David G. Reinhart
Chief Executive Officer, Treasurer
(and Chief Financial Officer)
By: /s/ V. James Davis
V. James Davis
Vice President and Secretary
file:f:\acmc\10q1st99.wpd
12
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 2,410,735
<SECURITIES> 1,881,144
<RECEIVABLES> 6,840,793
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,591,483
<PP&E> 0
<DEPRECIATION> 86
<TOTAL-ASSETS> 11,172,758
<CURRENT-LIABILITIES> 289,470
<BONDS> 0
0
0
<COMMON> 11,839
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 11,172,758
<SALES> 0
<TOTAL-REVENUES> 217,298
<CGS> 0
<TOTAL-COSTS> 28,904
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 188,394
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 188,394
<EPS-PRIMARY> .16
<EPS-DILUTED> .16
</TABLE>
