UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB/A
(Amendment No. 3)
[X] Annual Report Under Section 13 or 15(d) of the Securities Exchange Act of
1934 For the Fiscal Year Ended December 31, 2007
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 000-25919
American Church Mortgage Company
Incorporated Under the Laws of the State of Minnesota
I.R.S. Employer Identification No.
41-1793975
10237 Yellow Circle Drive
Minnetonka, MN 55343
Telephone: (952) 945-9455
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act: Common Stock $.01
par value
Check whether the issuer is not required to file reports pursuant to Section 13
or 15(d) of the Exchange Act. Yes [ ] No [X]
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 [ ]
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this From 10-KSB or any
amendment to this Form 10-KSB [X]
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
Revenues for its most recent fiscal year: $3,947,690
State the aggregate market value of the voting and non-voting common equity held
by non-affiliates computed by reference to the price at which the common equity
was sold, or the average bid and asked price of such common equity, as of a
specified date within the past 60 days: Not applicable.
The number of shares outstanding of the issuer's common stock as of February 27,
2009 was:
2,472,081 Shares of Common Stock Outstanding
DOCUMENTS INCORPORATED BY REFERENCE:
None
Transitional Small Business Disclosure Format (Check one): Yes [ ] No [X]
Explanatory Note
This Amendment No. 3 on Form 10-KSB/A (the "Amendment") to the Annual Report on
Form 10-KSB of American Church Mortgage Company (the "Company") for the period
ended December 31, 2007, which was originally filed with the Securities and
Exchange Commission on March 28, 2008 (the "Original Filing"), and which was
amended on April 29, 2008 (the "First Amendment"), and again on December 5, 2008
(the "Second Amendment") is being filed to amend the Original Filing as follows:
As a result of a comment letter from the Securities Exchange Commission dated
February 13, 2009, in part concerning the Company's Form 10-KSB for the fiscal
year ended December 31, 2007, the authorized officers of the Company, in
consultation with Boulay, Heutmaker, Zibell & Co., P.L.L.P., the Company's
independent registered public accounting firm, are filing this Amendment to
amend Item 7. "Financial Statements" in order to change the presentation of
interest expense to be included as a component of net interest income instead of
within other expense. The Company is in agreement with the Staff comments and is
taking action necessary to amend the above annual filing accordingly. This
Amendment does not change the Company's reported assets, liabilities,
stockholders' equity or the Company's net income for the period ended December
31, 2007. In addition, the Company changed the presentation of the provision for
losses on mortgage loans receivable and bonds to show these accounts as
components of net interest income.
In addition, pursuant to the rules of the SEC, this Amendment also includes
certifications executed as of the date of this Form 10-KSB/A as required by
Section 302 and 906 of the Sarbanes-Oxley Act of 2002. The certifications are
attached to this Form 10-KSB/A as Exhibits 31.1 and 32.1.
Except as stated herein, this Form 10-KSB/A does not reflect events occurring
after the date of the Original Filing and no attempt has been made in this
Annual Report on Form 10-KSB/A to modify or update other disclosures as
presented in the Original Filing.
AMERICAN CHURCH MORTGAGE COMPANY
FORM 10-KSB/A
INDEX
Page
No.
PART II
Item 7. Financial Statements..................................................................................F-1
Report of Independent Registered Public Accounting Firm ..............................................F-2
Balance Sheets
December 31, 2007 and 2006 ...........................................................................F-3
Statements of Operations
Years Ended December 31, 2007 and 2006 ...............................................................F-5
Statements of Stockholders' Equity
December 31, 2007 and 2006............................................................................F-6
Statements of Cash Flows
Years Ended December 31, 2007 and 2006................................................................F-7
Notes to Financial Statements.........................................................................F-9
Item 13. Exhibits.............................................................................................. 3
Signatures.......................................................................................................... 4
|
PART II
Item 7. Financial Statements
The Report of Independent Registered Public Accounting Firm, the Financial
Statements and the notes thereto are included in this Annual Report on Form
10-KSB/A beginning on Page F-1.
Item 13. Exhibits
Exhibit No. Title
31.1 Certification pursuant to Section 302 of the Sarbanes Oxley Act of 2002
32.1 Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes Oxley Act of 2002
|
3
AMERICAN CHURCH MORTGAGE COMPANY
Minnetonka, Minnesota
Financial Statements
December 31, 2007 and 2006
F-1
[GRAPHIC OMITTED][GRAPHIC OMITTED]
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors
American Church Mortgage Company
Minnetonka, Minnesota
We have audited the accompanying balance sheets of American Church Mortgage
Company as of December 31, 2007 and 2006 and the related statements of
operations, stockholders' equity, and cash flows for the years then ended.
American Church Mortgage Company's management is responsible for these financial
statements. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The Company is not required to
have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audit included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the company's internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of American Church Mortgage
Company as of December 31, 2007 and 2006, and the results of their operations
and their cash flows for the years then ended, in conformity with accounting
principles generally accepted in the United States of America.
/s/ Boulay, Heutmaker, Zibell & Co. P.L.L.P.
Certified Public Accountants
Minneapolis, Minnesota
March 28, 2008 except as to Note 9
which is as of March 5, 2009
|
F-2
AMERICAN CHURCH MORTGAGE COMPANY
Balance Sheets
-----------------------------------------------------------------------------------------------------------------------------------
December 31
ASSETS 2007 2006
-----------------------------------------------------------------------------------------------------------------------------------
Current Assets
Cash and equivalents $ 285,118 $ 232,258
Accounts receivable 112,546 136,709
Interest receivable 151,105 164,923
Current maturities of mortgage loans receivable, net of
allowance of $72,056 and $97,262 at
December 31, 2007 and 2006, respectively 907,812 3,073,619
Current maturities of bond portfolio 41,000 79,000
Prepaid expenses 7,072 8,372
------------ ------------
Total current assets 1,504,653 3,694,881
Mortgage Loans Receivable, net of current maturities 33,061,115 34,779,117
Real Estate Held for Sale, net of impairment reserve of 1,566,561 1,125,190
$635,286 and $1,196,168 at December 31, 2007 and
2006, respectively
Deferred Secured Investor Certificates Offering Costs,
net of accumulated amortization of $871,437 and
$706,022 at December 31, 2007 and 2006, respectively 700,479 852,720
Deferred Line of Credit Costs, net of accumulated
amortization of $36,652 at December 31, 2007 227,278 -
Bond Portfolio, net of current maturities and allowance
of $100,000 at December 31, 2007 11,222,713 9,471,697
Other - 60,000
---------- ----------
Total assets $48,282,799 $49,983,605
========== ==========
Notes to Financial Statements are an integral part of this Statement.
|
F-3
AMERICAN CHURCH MORTGAGE COMPANY
Balance Sheets
-----------------------------------------------------------------------------------------------------------------------------------
December 31
LIABILITIES AND STOCKHOLDERS' EQUITY 2007 2006
-----------------------------------------------------------------------------------------------------------------------------------
Current Liabilities
Current maturities of secured investor certificates $ 2,197,000 $ 3,169,000
Line of credit 3,350,000 1,166,000
Accounts payable 28,941 21,796
Accounts payable - related party - 4,515
Accrued expenses 18,022 -
Building funds payable 50,000 27,000
Current maturities of deferred income 30,412 62,023
Dividends payable 124,680 397,418
---------- ----------
Total current liabilities 5,799,055 4,847,752
Deferred Income, net of current maturities 596,164 611,891
Secured Investor Certificates, Series A 6,008,000 8,807,000
Secured Investor Certificates, Series B 14,626,000 14,662,000
Stockholders' Equity
Common stock, par value $.01 per share
Authorized, 30,000,000 shares
Issued and outstanding, 2,493,595 at December 31, 2007
and 2006 24,936 24,936
Additional paid-in capital 22,927,644 22,927,644
Accumulated deficit (1,699,000) (1,897,618)
----------- -----------
Total stockholders' equity 21,253,580 21,054,962
---------- ----------
Total liabilities and equity $48,282,799 $49,983,605
========== ==========
Notes to Financial Statements are an integral part of this Statement.
|
F-3
AMERICAN CHURCH MORTGAGE COMPANY
Statements of Operations
------------------------------------------------------------------------------------------------------------------------------------
Years Ended December 31
2007 2006
-----------------------------------------------------------------------------------------------------------------------------------
Interest Income $3,947,690 $3,927,765
Interest Expense 1,778,715 1,724,986
--------- ---------
Net Interest Income 2,168,975 2,202,779
Provision for losses on mortgage loans receivable 33,101 8,682
Provision for losses on bonds 100,000 -
------- ---------
Total provision for losses on mortgage loans and bonds 133,101 8,682
------- ---------
Net Interest Income after provision for mortgage and bond losses 2,035,874 2,194,097
Operating Expenses
Other operating expenses 965,322 834,764
Real estate impairment loss 217,362 205,165
--------- ---------
Total operating expenses 1,182,684 1,039,929
--------- ---------
Income Taxes - -
--------- ---------
Net Income $ 853,190 $1,154,168
========= =========
Basic and Diluted Income Per Common Share $ .34 $ .46
========= =========
Weighted Average Common Shares Outstanding 2,493,595 2,536,351
========== ==========
Notes to Financial Statements are an integral part of this Statement.
|
F-5
AMERICAN CHURCH MORTGAGE COMPANY
Statements of Stockholders' Equity
-----------------------------------------------------------------------------------------------------------------------------------
Additional
Common Stock Paid-In Accumulated
Shares Amount Capital Deficit
-----------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 2005 2,551,568 $25,516 $23,416,468 ($ 1,566,511)
Repurchase of 57,973 shares of
common stock (57,973) (580) (488,824)
Net income 1,154,168
Dividends declared (1,485,275)
--------- ------ ---------- ---------
Balance, December 31, 2006 2,493,595 $24,936 $22,927,644 ($ 1,897,618)
Net income 853,190
Dividends declared (654,572)
--------- ------ ---------- -------
Balance, December 31, 2007 2,493,595 $24,936 $22,927,644 ($1,699,000)
========= ====== ========== =========
Notes to Financial Statements are an integral part of this Statement.
|
F-6
AMERICAN CHURCH MORTGAGE COMPANY
Statements of Cash Flows
------------------------------------------------------------------------------------------------------------------------------------
Years Ended December 31
2007 2006
------------------------------------------------------------------------------------------------------------------------------------
Cash Flows from Operating Activities
Net income $ 853,190 $ 1,154,168
Adjustments to reconcile net income to net cash
from operating activities:
Impairment loss on real estate 217,362 205,165
Provision for losses on mortgage loans receivable 33,101 8,682
Provision for losses on bond portfolio 100,000 -
Amortization of deferred costs 202,067 199,373
Other 60,000
Change in assets and liabilities
Accounts receivable 24,163 (27,267)
Interest receivable 13,818 (26,781)
Prepaid expenses 1,300 (8,372)
Accounts payable 2,630 6,971
Accrued expenses 18,022 -
Deferred income (47,338) 117,312
------------- -----------
Net cash from operating activities 1,478,315 1,629,251
Cash Flows from Investing Activities
Investment in mortgage loans (6,807,144) (19,699,820)
Collections of mortgage loans 9,891,776 9,944,751
Investments in bonds (2,533,620) (306,850)
Proceeds from bond portfolio 720,604 658,020
--------- ---------
Net cash from (used for) investing activities 1,271,616 (9,403,899)
Cash Flows from Financing Activities
Proceeds from sale of property 130,343 -
Payments on line of credit, net 61,185 1,166,000
Proceeds from secured investor certificates - 3,369,000
Payments on secured investor certificate maturities (1,851,000) (1,770,000)
Payments for deferred costs (110,289) (177,987)
Stock redemptions - (489,404)
Dividends paid (927,310) (1,454,646)
--------- ---------
Net cash (used for) from financing activities (2,697,071) 642,963
--------- ---------
Net Increase (Decrease) in Cash and Equivalents 52,860 (7,131,685)
Cash and Equivalents - Beginning of Year 232,258 7,363,943
--------- ---------
Cash and Equivalents - End of Year $ 285,118 $ 232,258
=========== ============
- Continued -
Notes to Financial Statements are an integral part of this Statement.
|
F-7
AMERICAN CHURCH MORTGAGE COMPANY
Statements of Cash Flows - Continued
-----------------------------------------------------------------------------------------------------------------------------------
Years Ended December 31
2007 2006
-----------------------------------------------------------------------------------------------------------------------------------
Supplemental Schedule of Noncash Financing and
Investing Activities
Dividends payable $ 124,680 $ 397,418
========== ==========
Reclassification of mortgage and accounts receivable to
real estate held for sale $ 789,076 $ 573,108
========== ----------
Mortgage loans closed but not paid $ 50,000 $ 27,000
=========== ===========
Line of credit borrowings for deferred costs $ 166,815 $ -
========== ===========
Line of credit borrowings used for payment of
secured investor certificates $1,956,000 $ -
========= =========
Supplemental Cash Flow Information
Cash paid during the year for
Interest $1,760,693 $1,724,986
========= =========
Notes to Financial Statements are an integral part of this Statement.
|
F-8
AMERICAN CHURCH MORTGAGE COMPANY
Notes to Financial Statements
December 31, 2007 and 2006
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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 established 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. The most
sensitive estimates relate to the allowance for mortgage loans, real estate held
for sale and the valuation of the bond portfolio. It is at least reasonably
possible that these estimates could change in the near term and that the effect
of the change, if any, may be material to the financial statements.
Cash and Equivalents
The Company considers all highly liquid debt instruments purchased with
maturities of three months or less to be cash equivalents.
The Company maintains 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. At December 31, 2007 and 2006, such
investments were $5,000 and $15,403, respectively. The Company has not
experienced any losses in such accounts.
Bond Portfolio
The Company accounts for the bond portfolio under Financial Accounting Standards
No. 115, "Accounting for Certain Investments in Debt and Equity Securities." The
Company classifies its bond portfolio as "available-for sale."
Available-for-sale bonds are carried at fair value. Although no ready public
market for these bonds exists, management believes that cost approximates fair
value, since the bonds are callable at any time by the issuer at par.
Allowance for Mortgage Loans Receivable
The Company records loans receivable at their estimated net realizable value.
The Company's loan policy provides an allowance for estimated uncollectible
loans based on an evaluation of the current status of the loan portfolio. This
policy reserves for principal amounts outstanding on a particular loan
F-9
if cumulative interruptions occur in the normal payment schedule of a loan. The
Company reserves for the outstanding principal amount of a loan in the Company's
portfolio if the amount is in doubt of collection. Additionally, no interest
income is recognized on impaired loans that are in the foreclosure process. At
December 31, 2007, the Company reserved $72,056 for fourteen mortgage loans, of
which four are three or more mortgage payments in arrears. Three of the loans
are in the foreclosure process, of which one has declared bankruptcy. At
December 31, 2006, the Company reserved $97,262 for twelve mortgage loans of
which one was four mortgage payments in arrears and was in the foreclosure
process.
The total impaired loans, which are loans that are in the foreclosure process or
are no longer performing, were approximately $1,156,000 and $1,164,000 at
December 31, 2007 and 2006, respectively.
Real Estate Held for Sale
Foreclosure was completed on a church located in Battle Creek, Michigan. The
church congregation disbanded and the church property is currently unoccupied.
The Company owns and has taken possession of the church and has listed the
property for sale through a local realtor.
Foreclosure was also completed on a church located in Tyler, Texas. The church
congregation is now meeting in a different location and the church property is
currently unoccupied. The Company owns and has taken possession of the church
and has listed the property for sale through a local realtor.
A deed in lieu of foreclosure was received from a church located in Cleveland,
Ohio. The Company took possession of the church and listed the property for sale
through a local realtor. The sale of the property was completed on January 18,
2008. The property sold for approximately $215,000 and the Company received
approximately $182,000 from the sale of the property after closing costs and
realtor fees. The Company subsequently realized a tax deductible loss on the
property totaling approximately $221,000.
Foreclosure was completed on a church located in Dayton, Ohio. The church
congregation is now meeting in a different location and the church property is
currently unoccupied. The Company took possession of the church and listed the
property for sale through a local realtor.
Foreclosure was also completed on a church located in Dallas, Texas. The Company
took possession of the property. The Company received an earnest money deposit
from a buyer who is currently in the process of obtaining a certificate of
occupancy. When the certificate of occupancy is obtained, the sale of the
property will be completed.
The Company recorded the real estate held for sale at fair value, which is net
of the expected expenses related to the sale of the real estate.
F-10
Carrying Value of Long-lived Assets
The Company tests long-lived assets or asset groups for recoverability when
events or changes in circumstances indicate that the carrying amount may not be
recoverable. Circumstances which could trigger a review include, but are not
limited to: significant decreases in the market price of the asset; significant
adverse changes in the business climate or legal factors; accumulation of costs
significantly in excess of the amount originally expected for the acquisition or
construction of the asset; current period cash flow or operating losses combined
with a history of losses or a forecast of continuing losses associated with the
use of the asset; and current expectation that the asset will more likely than
not be sold or disposed significantly before the end of estimated useful life.
Recoverability is assessed based on the carrying amount of the asset and fair
value which is generally determined based on the sum of the undiscounted cash
flows expected to result from the use and the eventual disposal of the asset, as
well as specific appraisal in certain instances. An impairment loss is
recognized when the carrying amount is not recoverable and exceeds fair value.
Deferred Loan Costs
Deferred loan costs are amortized over the respective terms of the secured
investor certificates and the line of credit using the straight-line method
which approximates the effective interest method.
Revenue Recognition
Interest income on mortgage loans and the bond portfolio is recognized as
earned. 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
The Company elected to be taxed as a Real Estate Investment Trust (REIT).
Accordingly, the Company is not subject to Federal income tax to the extent of
distributions to its stockholders 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, as there were no potential dilutive shares outstanding.
Recently Issued Accounting Pronouncements
In September 2006, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 157 (SFAS 157), Fair Value
Measurements. SFAS 157 defines fair value, establishes a framework for measuring
fair value, and expands disclosures about fair value measurements. The statement
is effective for (1) financial assets and liabilities in financial statements
F-11
issued for fiscal years beginning after November 15, 2007, and interim periods
within those fiscal years and (2) certain non-financial assets and liabilities
in financial statements issued for fiscal years beginning after November 15,
2008, and interim periods within those fiscal years. The Company is evaluating
the effect, if any, that the adoption of SFAS 157 will have on its results of
operations, financial position, and the related disclosures.
In February 2007, the FASB issued Statement of Financial Accounting Standards
No. 159, (SFAS 159), The Fair Value Option for Financial Assets and Financial
Liabilities - Including an amendment of FASB Statement No. 115 (Accounting for
Certain Investments in Debt and Equity Securities). SFAS 159 provides companies
with an option to report selected financial assets and liabilities at fair value
and is effective for fiscal years beginning after November 15, 2007 with early
adoption permitted. The Company is evaluating the effect, if any, that the
adoption of SFAS 159 will have on its results of operations, financial position,
and the related disclosures.
Repurchase of Common Stock
Although our common shares are not redeemable by us, we may, at our complete
discretion, repurchase shares offered to us from time to time by our
shareholders. In such event, we may pay whatever price Church Loan Advisors,
Inc., the "Advisor" to the Company, deems appropriate and reasonable, and any
such shares repurchased will be re-designated as "unissued," will no longer be
entitled to distribution of dividends and will cease to have voting rights.
Shares that may be purchased are not part of a publicly announced plan to
repurchase shares nor does the Company plan or anticipate any stock repurchase
plans.
2. MORTGAGE LOANS AND BOND PORTFOLIO
At December 31, 2007, the Company had first mortgage loans receivable totaling
$34,040,983. The loans bear interest ranging from 7.50% to 12.00% at December
31, 2007. At December 31, 2006, the Company had first mortgage loans receivable
totaling $37,949,998 that bore interest ranging from 7.75% to 12.00%.
The Company also had a portfolio of secured church bonds at December 31, 2007
and 2006, which are carried at cost plus amortized interest income, which
approximates fair value since the bonds are callable at any time by the issuer
at par. The bonds pay either semi-annual or quarterly interest ranging from
4.50% to 12.00%. The combined principal of $11,392,790 at December 31, 2007 is
due at various maturity dates between February 1, 2008 and November 15, 2037.
Eight bond issues comprised 85% of the Company's bond portfolio at December 31,
2007. Six bond issues comprised 85% of the Company's bond portfolio at December
31, 2006. The Company recorded an allowance of $100,000 at December 31, 2007 for
one bond series that is in default. This bond series is approximately 18% of the
bond portfolio at December 31, 2007. The Company had maturities of bonds of
approximately $730,000 and $658,000 in 2007 and 2006, respectively. The Company
purchased approximately $2,534,000 and $307,000 of bonds in 2007 and 2006,
respectively.
F-12
The contractual maturity schedule for mortgage loans and the bond portfolio as
of December 31, 2007, is as follows:
Mortgage Loans Bond Portfolio
2008 $ 979,868 $ 41,000
2009 788,205 52,000
2010 1,292,126 164,000
2011 922,221 516,000
2012 998,478 346,000
Thereafter 29,060,085 10,273,790
---------- ----------
34,040,983 11,392,790
Less loan loss and bond reserves (72,056) (100,000)
Less discount from par (29,077)
------------ -----------
Totals $33,968,927 $11,263,713
========== ==========
|
The Company currently owns $2,035,000 First Mortgage Bonds issued by St. Agnes
Missionary Baptist Church. St. Agnes defaulted on its payment obligations to
bondholders. The church subsequently commenced a Chapter 11 bankruptcy
reorganization proceeding regarding three properties in November 2007. The
Company, along with all other bondholders, has a superior lien over all other
creditors. No accrual for interest receivable from the bonds is recorded by the
Company.
The church listed all three of its properties for sale for an aggregate price of
$19,166,668. The bondholders are currently owed $13,027,000 excluding any
accrued interest, fees or expenses. Herring Bank, Amarillo, Texas is trustee for
the first mortgage bondholders. Herring Bank and its legal counsel are
monitoring the bankruptcy process and will advise the bondholders of the
church's re-organization plans when made available. The Company reserved
$100,000 for the bonds at December 31, 2007. When additional information
regarding the Church's reorganization plan is provided, the Company will
determine whether an additional valuation adjustment for the bond investment
should be recorded.
3. SECURED INVESTOR CERTIFICATES
Secured investor certificates (see Note 6) are collateralized by certain
mortgage loans receivable or secured church bonds of approximately the same
value as the certificates. Additionally, the Company incurred deferred offering
costs related to the debt offerings. The maturity schedule for the secured
investor certificates at December 31, 2007 is as follows:
Secured Investor
Certificates
--------------------
--------------------
2008 $ 2,197,000
2009 4,024,000
2010 1,145,000
F-14
|
2011 680,000
2012 1,167,000
Thereafter 13,618,000
-----------
Totals $22,831,000
==========
|
Interest expense related to these Certificates for the years ended December 31,
2007 and 2006, respectively, is approximately $1,657,000 and $1,724,000. The
weighted average interest rate on the certificates was 7.34% and 7.33% for 2007
and 2006, respectfully.
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% of average invested assets (generally
defined as the average of the aggregate book value of the assets invested in
first mortgage bonds and loans secured by real estate) up to $35 million, 1.00%
of assets from $35 million to $50 million, and 0.75% on assets in excess of $50
million, which is payable on a monthly basis. The Advisor also receives 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 Advisor
management and origination fees of approximately $487,000 and $573,000 during
2007 and 2006, respectively. At December 31, 2006, the Company had a payable of
approximately $5,000 due to the Advisor.
The Advisor and the Company are related through common ownership and common
management. See Notes 1 and 6 for additional transactions.
5. INCOME TAXES
As discussed in Note 1, a REIT is subject to taxation to the extent that taxable
income exceeds dividend distributions to shareholders. In order to maintain
status as a REIT, the Company is required to distribute at least 90% of its
taxable income. In 2007, the Company had pretax income of $853,190 and
distributions to shareholders in the form of dividends during the tax year of
$654,572. The expected tax expense to the Company, pre-dividends would have been
$290,085. In 2006, the Company had pretax income $1,154,168 and distributions to
shareholders in the form of dividends during the tax year of $1,485,275. The
expected tax expense to the Company, pre-dividends, would have been $392,417 in
2006. The Company paid out 100% of taxable income in dividends in 2007 and 2006.
F-15
The following reconciles the income tax provision with the expected provision
obtained by applying statutory rates to pretax income:
2007 2006
Expected tax expense $290,085 $392,417
Realized Tax Loss (284,427) -
Benefit of REIT distributions (129,118) (504,994)
Valuation allowance 63,460 112,577
------- -------
Total provision $( 60,000) $ -
======= =======
The components of deferred income taxes are as follows:
2007 2006
Loan origination fees $213,036 $229,131
Loan loss allowance 58,499 33,069
Real-estate impairment 215,997 406,697
Valuation allowance (487,532) (608,897)
-------- ---------
Total deferred income tax $ - $ 60,000
========= ========
The total deferred tax assets are as follows:
2007 2006
Deferred tax assets $487,532 $668,897
Deferred tax asset valuation allowance (487,532) (608,897)
--------- ---------
Net deferred tax asset $ - $ 60,000
========= ========
|
The change in the valuation allowance was approximately $63,000 and $113,000 for
2007 and 2006, respectively.
6. PUBLIC OFFERINGS OF THE COMPANY
In July 2004, the Company filed a Registration Statement with the Securities and
Exchange Commission for a second public offering of debt securities, which the
Securities and Exchange Commission declared effective October 7, 2004. The
Company concluded the offering on October 7, 2006. The Company offered
$23,000,000 principal amount of its Series B secured investor certificates.
Certificates could be purchased in any multiple of $1,000. We sold $14,860,000
of secured investor certificates during the offering.
F-15
Pursuant to the terms of the Underwriting Agreement, the Company incurred
commissions and non-reimbursable expenses and paid approximately $173,000 during
2006 in connection with these public offerings to the managing underwriter and
participating broker-dealers .
7. 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 at December 31, 2007 and 2006:
2007 2006
--------------------------------- -------------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
---------- ---------- ---------- ----------
Cash and equivalents $ 285,118 $ 285,118 $ 232,258 $ 232,258
Accounts receivable 112,546 112,546 136,709 136,709
Interest receivable 151,105 151,105 164,923 164,923
Mortgage loans receivable 33,968,927 33,968,927 37,852,736 37,852,736
Bond portfolio 11,263,713 11,263,713 9,550,697 9,550,697
Secured investor certificates 22,831,000 22,831,000 26,638,000 26,638,000
|
The carrying value of cash and equivalents approximates fair value. The carrying
value of the mortgage loans receivable approximates fair value because of the
substantial turnover and activity in this portfolio. The carrying value of the
bond portfolio approximates amortized cost since our bonds are callable at any
time by the issuer at par. The carrying value of the secured investor
certificates approximates fair value because the interest rates at which the
certificates have been sold have not changed significantly in the past year.
8. LINE OF CREDIT
The Company obtained a $1,000,000 line of credit with its bank on July 22, 1999,
which was increased to $2,000,000 on March 18, 2002 and increased to $3,000,000
on February 13, 2007, subject to certain borrowing base limitations, through
August 1, 2007. Interest was charged at 0.50% over the prime rate, which totaled
8.75% at December 31, 2007. The line of credit was fully paid on July 26, 2007
by the KeyBank facility discussed below, leaving no balance outstanding at
December 31, 2007. There was interest expense in the amount of approximately
$41,000 related to the line of credit for December 31, 2007.
On July 26, 2007, the Company entered into a three-year, adjustable rate, $15
million revolving credit facility with KeyBank National Association. There was a
balance of $3,350,000 outstanding at December 31, 2007. There was interest
expense in the amount of approximately $86,000 related to the facility for
December 31, 2007. Interest is charged at the LIBOR rate plus an applicable
margin, which was 1.50% at December 31, 2007. The total interest rate was 6.56%
at December 31, 2007. The applicable margin is indexed based upon the Company's
financial performance as described below.
F-16
The Credit Agreement contains customary affirmative and negative covenants. The
financial covenants include borrowing base restrictions, a maximum indebtedness
to assets ratio, a minimum cash flow coverage ratio, a minimum tangible net
worth ratio, and a maximum non-performing assets ratio. The creation of
indebtedness outside the credit facility, creation of liens, making of certain
investments, sale of assets, and incurrence of debt are all either limited or
require prior approval from KeyBank or the lenders under the Credit Agreement.
The Credit Agreement also contains customary events of default such as
nonpayment, bankruptcy, and change in control, which if they occur may
constitute an event of default. Additionally, under certain circumstances, total
availability under the credit facility can be increased to $25 million. The
revolving credit facility is secured by a first priority security interest in
substantially all of the Company's assets other than collateral pledged to
secure the Company's Series "A" and Series "B" secured investor certificates
The Company's applicable margin rate is currently 1.50% over LIBOR for LIBOR
rate loans and 0.25% over prime rate for base rate loans. Based on the Company's
borrowing base adjusted leverage ratio this applicable margin can be adjusted,
on any date of determination, either upward or downward based on the following
schedule:
-------------------------------------- ------------------------------------ --------------------------------------
Total Leverage Ratio: Per Annum Percentage for LIBOR Per Annum Percentage for Base Rate
Loans Loans
-------------------------------------- ------------------------------------ --------------------------------------
-------------------------------------- ------------------------------------ --------------------------------------
Greater than or equal to 60% 1.875% 0.50%
-------------------------------------- ------------------------------------ --------------------------------------
-------------------------------------- ------------------------------------ --------------------------------------
Less than 60% but greater than or 1.50% 0.25%
equal to 55%
-------------------------------------- ------------------------------------ --------------------------------------
-------------------------------------- ------------------------------------ --------------------------------------
Less than 55% 1.35% 0.00%
-------------------------------------- ------------------------------------ --------------------------------------
|
The total leverage ratio is determined by dividing total liabilities by total
adjusted tangible asset value.
9. AMENDMENT TO FINANCIAL STATEMENT
The Company has changed the presentation of interest expense and the provision
for losses on mortgage loans receivable and bonds on the Statement of Operations
to include these accounts as components of net interest income.
F-17
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: March 5, 2009
AMERICAN CHURCH MORTGAGE COMPANY
By: /s/ Philip J. Myers
---------------------
Philip J. Myers
|
Chief Executive Officer and Chief Financial Officer
(Principal Executive Officer and Principal Financial
and Accounting Officer)
4
American Church Mortgage (CE) (USOTC:ACMC)
Historical Stock Chart
From Jun 2024 to Jul 2024
American Church Mortgage (CE) (USOTC:ACMC)
Historical Stock Chart
From Jul 2023 to Jul 2024
