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, 2000
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 ---
The number of shares outstanding of the Registrant's stock as of April 30, 2000
was:
1,395,934 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, 2000 and December 31, 1999...................3
Statements of Operations
Three Month Periods Ended March 31, 2000 and 1999.................. 4
Statements of Cash Flows
Three Months Ended March 31, 2000 and 1999...........................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
BALANCE SHEETS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
------------ -----------
(Unaudited) (Audited)
Assets:
Current Assets
<S> <C> <C>
Cash and Cash Equivalents.............................. $ 446,418 $ 382,765
Current Maturities of Loans Receivable................ 239,297 218,398
Current Maturities of Bonds Receivable................. 19,000 17,000
Accounts Receivable.................................... 26,274 5,782
Prepaid Expenses....................................... 1,667 2,917
-------------- -------------
Total current Assets: 732,656 626,862
Loans Receivable, net of current maturities............ 11,066,616 10,189,529
Bonds receivable....................................... 2,037,436 2,039,199
Deferred Tax Asset..................................... 60,000 60,000
------------- ------------
Total Assets: $ 13,896,708 $ 12,915,590
=========== ==========
Liabilities and Shareholders' Equity:
Current Liabilities:
Line of Credit......................................... $ 800,000 $ 500,000
Accounts Payable....................................... 1,375 - 0 -
Deferred Income........................................ 23,227 23,078
Dividends Payable...................................... 306,723 274,280
----------- ----------
Total current Liabilities:......................... 1,131,325 797,358
Deferred Income........................................ 182,105 164,913
Shareholders' Equity
Common stock, par value $.01 per share; authorized
30,000,000 shares; issued and outstanding 1,392,660
as of March 31, 2000, 1,322,289 shares as of
December 31, 1999................................. 13,926 13,223
Additional Paid in Capital............................. 12,726,278 12,070,410
Net Income .......................................... (156,926) (130,314)
------------- -----------
Total Shareholders' Equity: 12,583,278 11,953,319
----------- ----------
$ 13,896,708 $ 12,915,590
=========== ==========
</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,
2000 1999
---- ----
Revenues
<S> <C> <C>
Interest Income Loans........................... $ 270,952 $ 164,508
Interest Income Other....................... 67,080 44,794
Capital Gains Realized.......................... 558 1,460
Origination Income.............................. 6,373 6,536
--------- ---------
Total Revenues: 344,963 217,298
Expenses
Professional fees............................... 41,022 24,715
Director fees................................... 800 800
Amortization.................................... - 0 - 76
Interest Expense................................ 18,024 - 0 -
Other........................................... 5,006 3,313
-------- ---------
Total Expenses: 64,852 28,904
Provision for Income Taxes........................... - 0 - - 0 -
---------- --------
Net Income .......................................... $ 280,111 $ 188,394
========= =========
Income Per Common Share.............................. $ .20 $ .16
Weighted Average Common Shares
Outstanding.................................... 1,378,249 1,160,225
Dividends Declared................................... $ 306,723 $ 217,828
</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,
2000 1999
---- ----
Cash Flows From Operating Activities
<S> <C> <C>
Net Income $ 280,111 $ 188,394
Adjustments to reconcile net income to net cash
used in operating activities:
Amortization - 0 - 76
Change in assets and liabilities:
Deferred income 17,342 12,976
Accounts receivable (20,493) 28,777
Prepaids 1,250 - 0 -
Increase in accounts payable 1,375 35,920
---------- --------
Net cash from operating activities 279,585 266,143
Cash Flows From Investing Activities
Investment in mortgage loans (950,000) (990,000)
Collections of mortgage loans 52,014 381,067
Investment in bonds - 0 - (857,147)
Proceeds from bond portfolio (237) - 0 -
---------- --------------
Net cash used for investing activities (898,223) (1,466,080)
Cash Flows From Financing Activities
Net borrowing on line of credit 300,000 - 0 -
Proceeds from stock offering 656,571 902,146
Dividends Paid (274,280) (233,004)
-------- --------
Net cash from financing activities 682,291 669,142
Net increase (decrease) in cash 63,653 (530,795)
Cash
Beginning of period 382,765 2,941,530
-------- ----------
End of period $ 446,418 $ 2,410,735
======== ==========
Supplemental Schedule of Noncash
Financing Activities:
Dividends declared but not paid $ 306,723 $ 217,828
-------- ---------
</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, 1999 1,322,289 $ 13,223 $ 12,070,410 $ (130,314)
Issuance of 70,371 shares of
common stock, net of
offering costs 70,371 703 655,868
Net Income 280,111
Dividends declared (306,723)
--------------- --------------- ------------------ ----------
Balance, March 31, 2000(unaudited) 1,392,660 $ 13,926 $ 12,726,278 $ (156,926)
</TABLE>
Notes to Financial Statements are an integral part of this Statement.
6
<PAGE>
AMERICAN CHURCH MORTGAGE COMPANY
NOTES TO UNAUDITED FINANCIAL STATEMENTS MARCH 31, 2000
- -------------------------------------------------------------------------------
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 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, 1999 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, 1999.
Nature of Business
American Church Mortgage Company, a Minnesota corporation, was incorporated on
May 27, 1994. The Company was organized to engage primarily in the business of
making mortgage loans to churches and 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 principles. 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 its accounts primarily at two financial institutions. At
times throughout the year, the Company's cash and equivalents balances may
exceed amounts insured by the Federal Deposit Insurance Corporation. Cash in
money market funds is not Federally insured. The Company has not experienced any
losses in such accounts.
Bond Portfolio
The Company accounts for its bond portfolio under Financial Accounting Standards
No. 115, "Accounting for Certain Investments in Debt and Equity Securities."
The Company classified its bond portfolio as "held-to-maturity" in 1998 because
it had the intent and ability to hold the securities to maturity. Bonds
classified as held-to-maturity are carried at amortized cost. In 1999, the
Company reclassified its bond portfolio to an "available-for sale"
classification, which had no financial statement effect. Available-for-sale
bonds are carried at fair value. Although no ready public market for these bonds
exists, management believes that their cost approximates their fair value.
7
<PAGE>
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
Allowance for Mortgage Loans Receivable
The Company follows a policy of providing an allowance for mortgage loans
receivable. However, at March 31, 2000, management believes the mortgage loans
receivable to be collectible in all material respects, and therefore, no
allowance is presently provided.
Organizational Expenses
Organizational expenses were stated at cost net of amortization and were
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.
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 for the purpose of calculating earnings per
share. Stock options had no effect on the weighted average number of shares
outstanding.
2. MORTGAGE LOANS AND BOND PORTFOLIO
At March 31, 2000, the Company had mortgage loans receivable totaling
$11,305,913. The loans bear interest ranging from 9.50% to 12.00%. The Company
also had a portfolio of secured church bonds at March 31, 2000 which are carried
at cost plus amortized interest income. The bonds pay either semi-annual or
quarterly interest ranging from 5.75% to 10.50%. The combined principal of
$2,067,000 at March 31, 2000 is due at various maturity dates between February
1, 2001 and February 1, 2019. Three bond issues comprised 85% of the total bond
portfolio at March 31, 2000.
The maturity schedule for mortgage loans and bonds receivable as of March 31,
2000 is as follows:
<TABLE>
<CAPTION>
Mortgage Loans Bond Portfolio
<S> <C> <C> <C>
2000 $ 177,106 $ 19,000
2001 258,831 27,000
2002 287,388 68,000
2003 319,109 37,000
2004 354,346 110,000
Thereafter 9,909,133 1,806,000
----------- ---------
2,067,000
Less discounts from par (10,564)
Totals $11,305,913 $2,056,436
========== =========
</TABLE>
8
<PAGE>
3. STOCK OPTION PLAN
The Company 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 was to be the fair market value at the grant date. On November 15,
1994, the Company began the annual grant of options to purchase an aggregate of
21,000 shares of common stock at $10 per share. These options became exercisable
November 15, 1995 and 21,000 options granted expired November 15, 1999. No
options were exercised as of March 31, 2000.
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.
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 office space, administrative services and
personnel.
Under the terms of 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 to the Advisor management
and origination fees totaling $40,966 and $14,000 through March 31, 2000.
The Advisor and the Company are related through common ownership and common
management. See Notes 1 and 6.
5. PUBLIC OFFERINGS OF THE COMPANY'S COMMON STOCK
The Company filed a Registration Statement with the Securities and Exchange
Commission for a third public offering of its common stock in August 1999. The
Company offered to sell 1,500,000 shares of its common stock at a price of $10
per share. The offering is being underwritten by an underwriter (an affiliate of
the Advisor) on a "best efforts" basis, and no minimum sale of stock was
required. The stock sale commenced on September 23, 1999. A total of 189,407
shares have been sold through March 31, 2000.
6. FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair value of the Company's financial instruments, none of which
are held for trading purposes, are as follows:
<TABLE>
<CAPTION>
March 31, 2000 December 31, 1999
------------------------------- --------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
----------- ------------- ----------- -----------
<S> <C> <C> <C> <C>
Cash and equivalents $ 446,418 $ 446,418 $ 382,765 $ 382,765
Accounts receivable 26,274 26,274 5,782 5,782
Mortgage loans receivable 11,305,913 11,305,913 10,407,927 10,407,927
Bond portfolio 2,056,436 2,056,436 2,056,199 2,056,199
</TABLE>
The carrying value of cash and equivalents approximates fair value. The fair
value of the mortgage loans receivable and the bond portfolio are estimated by
discounting future cash flows using current discount rates that reflect the
risks associated with similar types of loans.
8. LINE OF CREDIT
The Company has obtained a $1,000,000 line of credit with its bank on July 22,
1999, subject to certain borrowing base limitations, through August 1, 2000.
Interest is charged at 1% over the prime rate totaling 10.00% at March 31, 2000.
The line of credit is collateralized by the mortgage secured bonds held by the
Company. Outstanding borrowings were $800,000 at March 31, 2000.
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
AMERICAN CHURCH MORTGAGE COMPANY
Plan of Operation
We were founded in May 1994 and began a "best efforts" offering of our
common stock on July 11, 1995, and commenced active business operations on April
15, 1996 after completion of the "Minimum Amount" in our initial public offering
(described below). Consequently, for the years ended December 31, 1994 and 1995,
we 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
our offering of 2,000,000 common shares at a price of $10.00 per share. We
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, we could not commence our 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 us once the Minimum Offering was achieved, and conducting informational
meetings with brokers and broker-dealers identified to us by the
Dealer/Manager--American Investors Group, Inc. ("American"), an affiliate of
ours. We concluded our initial public offering on November 8, 1996. As of such
date we had sold 335,481 shares to approximately 281 individuals, not including
20,000 shares ($200,000) previously purchased by our initial shareholder -- DRM
Holdings, Inc.
On September 26, 1997, the Securities and Exchange Commission declared
effective our 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 ours. The Offering was conducted on a"best-efforts" basis
pursuant to applicable rules of the Securities and Exchange Commission. We
concluded our second public offering on January 22, 1999. We sold 799,759 shares
during our second public offering.
On September 23, 1999 the Securities and Exchange Commission declared
effective our third public offering of 1,500,000 common shares at a price of
$10.00 per shares ($15,000,000) under SEC files 333-81819. The Offering is being
conducted on a "best-efforts" basis pursuant to applicable rules of the
Securities and Exchange Commission. As of March 31, 2000 we had sold 189,407
shares and had 1,392,660 shares outstanding and approximately 922 individual
shareholders.
We currently have twenty eight first mortgage loans aggregating $10,903,750
in principal amount, three second mortgage loans aggregating $745,000 in
principal amount and $2,067,000 in principal amount of first mortgage bonds
issued by churches. Funding of additional first mortgage loans is expected to
continue on an on-going basis as more 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 Dividend Reinvestment Plan.
Results of Operations
During the three month period ended March 31, 2000 our total assets
increased by $981,118 due primarily to sale of our common stock. Total
liabilities increased by $44,436 due to deferred income and dividends declared
but not yet paid as of March 31, 2000. During the three month period ending
March 31, 2000 we funded two additional first mortgage loans to churches for an
aggregate amount of $950,000. All loans we have made range in interest rate
charged to the borrowers from 9.50% to 12.00%. As of March 31, 2000, the
average, principal-adjusted interest rate on the Company's portfolio of loans
was 10.39%. The Company's portfolio of bonds has an average current yield of
9.12%.
Net operating income for the Company's three month period ended March 31,
2000 was $280,111 on total revenues of $344,963. Interest income earned on our
portfolio of loans was $270,952. Excluded from revenue for the three month
period ended March 31, 2000 is $23,886 of origination income, or "points," we
received , 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 we have elected to operate as a real estate investment
trust we distribute to shareholders at least 95% of "Taxable Income," the
dividends declared and paid to Shareholders for the quarter ended March 31, 2000
included origination income even though it is not recognized in its entirety for
the period under GAAP.
10
<PAGE>
Our Board of Directors declared dividends of $.225 for each share held of
record on March 31, 2000. During our 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, 2000
represents a 9.00% annual rate of return on each share of common stock owned and
purchased for $10 per share.
Our total assets for the three month period ended March 31, 2000 increased
$981,118 to $13,896,708 primarily as a result of the sale and issuance of our
common stock pursuant to our current public offering, the proceeds of which were
deployed into two new mortgage loans and equivalent money market obligations.
Shareholders' Equity rose $629,959 to $12,583,278 for the same reason. Our
liabilities at the end of the three month period ended March 31, 2000 are
primarily comprised of a "Deferred Income", reflecting the practice of
recognizing 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, 2000 but not yet paid.
Liquidity and Capital Resources
Our revenue is derived principally from interest income, and secondarily,
origination fees and renewal fees generated by mortgage loans we make. We also
earn 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. We generate 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. Our principal
expenses are advisory fees, legal and accounting fees, communications costs with
our Shareholders, and the expenses of our stock transfer agent, registrar and
dividend reinvestment agent.
Our 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 we make, and (iii) borrowed funds. We believe that the "rolling"
effect of mortgage loans maturing, together with dividends reinvested under the
Dividend Reinvestment Plan, will provide a supplemental source of capital to
fund our business operations in future years. Nevertheless, we believe that it
may be desirable, if not necessary, to sell additional shares of common stock,
in order to enhance our capacity to make mortgage loans on a continuous basis.
There can be no assurance we will be able to raise additional capital on terms
acceptable for such purposes.
We may borrow funds in an amount not to exceed 50% of our average invested
assets. On July 22, 1999 we obtained a line of credit with Beacon Bank,
Shorewood Minnesota. Interest is charged at 1% over the prime rate totaling
10.00% at March 31, 2000. The line of credit is collateralized by the mortgage
secured bonds we own. We have borrowed $800,000 against our line of credit as of
March 31, 2000. During the three month period ended March 31, 2000 we had paid
$18,024 in interest expense.
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, 2000.
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 12, 2000
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
12
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-2000
<PERIOD-END> MAR-31-2000
<CASH> 446,418
<SECURITIES> 2,056,436
<RECEIVABLES> 11,303,913
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 732,656
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 13,896,708
<CURRENT-LIABILITIES> 1,131,325
<BONDS> 0
0
0
<COMMON> 13,926
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 13,896,708
<SALES> 0
<TOTAL-REVENUES> 344,963
<CGS> 0
<TOTAL-COSTS> 64,852
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 280,111
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 280,111
<EPS-BASIC> .20
<EPS-DILUTED> .20
</TABLE>
