UNITED STATES
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 September 30, 2004
| ¨ | TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT |
For the transition period from to
Commission file number 33-64520
BANK BUILDING CORPORATION
(Exact name of small business issuer as specified in its charter)
| Virginia | 54-1714800 | |
| (State or other jurisdiction of incorporation or organization) | (IRS Employer Identification No.) |
1300 Kings Mountain Road, Martinsville, Virginia 24112
(Address of principal executive offices)
(276) 656-1776
(Issuer’s telephone number)
(Former name, former address and former fiscal year, if changed since last report)
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¨ Nox
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes¨ Nox
There are 398,244 shares of stock outstanding as of November 14, 2004.
Transitional Small Business Disclosure Format (Check one): Yes¨ Nox
INDEX
2
Part I - Financial Information
Item 1 - Financial Statements.
Consolidated Statements of Financial Condition
| September 30, 2004 | December 31, 2003 | |||||
| (Unaudited) | ||||||
| Assets | ||||||
Current assets | ||||||
Cash | $ | 109,838 | $ | 79,069 | ||
Accounts receivable | 550 | — | ||||
Property – net | 33,068,669 | 33,721,682 | ||||
Other assets | 558,196 | 226,894 | ||||
Total assets | $ | 33,737,253 | $ | 34,027,645 | ||
| Liabilities and Stockholders’ Equity | ||||||
Current liabilities | ||||||
Accounts payable | $ | 87,620 | $ | 2,070 | ||
Accrued interest | 207,469 | 208,216 | ||||
Income taxes payable | — | 135,214 | ||||
Current portion of long-term debt | 3,363,497 | 2,483,787 | ||||
Notes payable | 25,000 | 60,000 | ||||
Other liabilities | 243,386 | — | ||||
Total current liabilities | 3,926,972 | 2,889,287 | ||||
Long-term liabilities | ||||||
Long-term debt - net of current portion | 28,871,085 | 30,490,764 | ||||
Deferred income taxes | — | 80,042 | ||||
Total long-term liabilities | 28,871,085 | 30,570,806 | ||||
Total liabilities | 32,798,057 | 33,460,093 | ||||
Stockholders’ equity | ||||||
Common Stock, no par value, 400,000 shares authorized; 398,244 shares issued and outstanding | — | — | ||||
Retained earnings | 939,196 | 567,552 | ||||
Total stockholders’ equity | 939,196 | 567,552 | ||||
Total liabilities and stockholders’ equity | $ | 33,737,253 | $ | 34,027,645 | ||
The accompanying notes are an integral part of these consolidated financial statements.
3
Consolidated Statements of Income
(Unaudited)
Nine Months Ended September 30, | Three Months Ended September 30, | |||||||||||||
| 2004 | 2003 | 2004 | 2003 | |||||||||||
Income | ||||||||||||||
Lease income | $ | 2,925,299 | $ | 2,861,794 | $ | 948,020 | $ | 949,079 | ||||||
Other income | 97 | 89,518 | — | 5,651 | ||||||||||
Total income | 2,925,396 | 2,951,312 | 948,020 | 954,730 | ||||||||||
Operating Expenses | ||||||||||||||
Interest | 1,841,594 | 1,917,065 | 605,486 | 634,998 | ||||||||||
Depreciation | 505,938 | 510,000 | 168,646 | 170,000 | ||||||||||
Amortization | — | 12,900 | — | 4,300 | ||||||||||
Other | 206,221 | 250,691 | 52,943 | 70,565 | ||||||||||
Total operating expenses | 2,553,753 | 2,690,656 | 827,075 | 879,863 | ||||||||||
Income before income taxes | 371,643 | 260,656 | 120,945 | 74,867 | ||||||||||
Income taxes | — | (96,443 | ) | — | (27,701 | ) | ||||||||
Net income | $ | 371,643 | $ | 164,213 | $ | 120,945 | $ | 47,166 | ||||||
Retained earnings, beginning of period | 567,552 | 363,216 | — | — | ||||||||||
Retained earnings, end of period | 939,195 | 527,429 | 120,945 | 47,166 | ||||||||||
Basic and diluted earnings per share | $ | 0.93 | $ | 0.41 | $ | 0.30 | $ | 0.12 | ||||||
The accompanying notes are an integral part of these consolidated financial statements.
4
Consolidated Statements of Cash Flows
(Unaudited)
| Nine Months Ended September 30, | ||||||||
| 2004 | 2003 | |||||||
Cash flows from operating activities | ||||||||
Net Income | $ | 371,643 | $ | 164,213 | ||||
Adjustments to reconcile to net cash from operating activities: | ||||||||
Depreciation | 505,938 | 510,000 | ||||||
Amortization | — | 12,900 | ||||||
Deferred income taxes | (80,042 | ) | — | |||||
Change in: | ||||||||
Other assets | (331,301 | ) | (75,251 | ) | ||||
Accounts payable | 85,550 | 124,546 | ||||||
Other liabilities | 243,386 | 3,207 | ||||||
Income taxes payable | (135,214 | ) | — | |||||
Accounts receivable | (550 | ) | — | |||||
Accrued interest | (747 | ) | (17,725 | ) | ||||
Net cash from operating activities | 658,663 | 721,890 | ||||||
Cash flows from investing activities | ||||||||
Sale (purchase) of property | 147,074 | (18,539 | ) | |||||
Net cash from investing activities | 147,074 | (18,539 | ) | |||||
Cash flows from financing activities | ||||||||
Repayment of long-term debt | (739,969 | ) | (675,688 | ) | ||||
Proceeds from notes payable | (35,000 | ) | — | |||||
Net cash from financing activities | (774,969 | ) | (675,688 | ) | ||||
Net change in cash | 30,768 | 27,663 | ||||||
Cash - beginning of period | 79,069 | 82,790 | ||||||
Cash - end of period | $ | 109,837 | $ | 110,453 | ||||
The accompanying notes are an integral part of these consolidated financial statements.
5
Notes to Consolidated Financial Statements
1. Presentation of Statements
In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments (all of which were normal recurring accruals) considered necessary for a fair presentation of financial position, results of operations and cash flows for the interim periods.
The accompanying financial statements include the Corporation’s wholly-owned subsidiary, Blackstone Properties, LLC. All intercompany transactions between the Corporation and Blackstone Properties have been eliminated in these statements. Blackstone Properties owns a shopping center in southside Virginia and an office park in Roanoke, Virginia, and leases space to a number of retail tenants.
The results of operations for the interim period ended September 30, 2004 are not necessarily indicative of the results which may be expected for the full year ended December 31, 2004. These unaudited financial statements should be read in conjunction with the financial statements, accounting policies and financial footnotes thereto included in the Corporation’s 2003 Form 10-KSB filed with the Securities and Exchange Commission.
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and income and expenses during the reporting period. Actual results could differ from those estimates.
Item 2 - Management’s Discussion and Analysis or Plan of Operation.
This report contains statements concerning the Corporation’s expectations, plans, objectives, future financial performance and other statements that are not historical facts. These statements may constitute “forward-looking statements” as defined by federal securities laws. In some cases, readers can identify the forward-looking statements by the use of words such as “may,” “ will,” “should,” “could,” “expect,” “plan,” “intend,” “anticipate,” “believe,” “estimate,” “predict,” “potential” or “continue” or the negative or other variations of these words, or other comparable words or phrases. These statements may address issues that involve estimates and assumptions made by management, risks and uncertainties, and actual results could differ materially from historical results or those anticipated by such statements. Factors that could have a material adverse effect on the Corporation’s operations and future prospects include, but are not limited to: desired business strategies, general economic conditions, interest rates, developments in local and national markets, and other matters, which, by their nature, are subject to significant uncertainties. These risks and uncertainties should be considered in evaluating the forward-looking statements contained herein, and readers are cautioned not to place undue reliance on such statements, which speak only as of the date of this report.
General
The primary purpose of Bank Building Corporation (the Corporation) is to acquire and develop property for lease as bank offices to the banks with which the Corporation maintains business relationships (Participating Banks). As of September 30, 2004, the Participating Banks consisted of Blue Ridge Bank, National Association, Floyd, Virginia; Central National Bank, Lynchburg, Virginia; Community National Bank, South Boston, Virginia; First National Bank, Rocky Mount, Virginia; First National Exchange Bank, Roanoke, Virginia; Mountain National Bank, Galax, Virginia; Patrick Henry National Bank, Bassett, Virginia; Patriot Bank, National Association, Fredericksburg, Virginia; Peoples National Bank, Danville, Virginia; and Shenandoah National Bank, Staunton, Virginia.
The selection of sites and construction of the offices is done by the particular Participating Bank that will lease the particular site to insure the needs of that bank are met. There are, however, no commitments on the part of any Participating Bank to present prospective office properties to the Corporation nor are there any commitments on the part of the Corporation to accept any prospective office properties offered by any of the Participating Banks. The acquisition and development of property is financed through loans from various sources. From time to time Participating Banks make loans in connection with the acquisition of a site for another Participating Bank. The Corporation does not, however, seek loans for the acquisition of a given site from the particular Participating Bank
6
that intends to lease that site. The Corporation also acquires funds for site acquisition and development from banks that are not Participating Banks.
Critical Accounting Policies
As of September 30, 2004, there have been no significant changes with regard to the application of critical accounting policies and estimates disclosed in “Management’s Discussion and Analysis” in the Corporation’s annual report on Form 10-KSB for the fiscal year ended December 31, 2003. The policies disclosed included: Accounting for the Acquisition and Classification of Real Estate Assets and Accounting for the Disposition and Impairment of Real Estate Assets.
Properties
As of September 30, 2004, the Corporation owned 46 offices that are leased to various Participating Banks under triple net operating leases. The leasing bank is responsible for all property taxes, insurance and maintenance costs on each leased office. The Corporation incurs interest and depreciation expenses related to each office as well as other, minimal operating costs.
The Corporation also owns the Westlake Corner Shopping Center near Smith Mountain Lake. This center consists of 50,000 square feet of space on 29 acres. The anchor tenants for the center are Food Lion, Revco, and Family Dollar Store. First National Bank, Rocky Mount, Virginia opened an office on a portion of this property on June 5, 1998.
The Corporation also owns Blackstone Properties, LLC, a wholly owned subsidiary. Blackstone Properties owns two properties: a shopping center in southside Virginia and Executive Office Park, an office complex located in Roanoke, Virginia. The shopping center maintains various retail tenants. Executive Office Park is an office complex consisting of six separate buildings containing approximately 54,000 square feet of space divided into 28 suites. The Corporation also owns a Golden Corral Restaurant in Raleigh, North Carolina, which is leased to a third party.
Operating Results
Net Income.For the first nine months of 2004, the Corporation generated net income of $371,643 compared to $164,213 for the same period of the previous year, for an increase of 126%. The increase is primarily attributable to an increase in lease income. Lease income was 100% of total income for the first nine months of 2004 and 97% for the same period of the previous year, and has historically been the Corporation’s principal source of revenue.
Operating Expenses. Operating expenses for the first nine months of 2004 were $2,553,753 as compared to $2,690,656 for the same period of 2003. This decrease of $136,903, or 5%, is due to decreases in all expense categories. Interest and depreciation expense are the Corporation’s principal operating expenses.
Interest expense fell to $1,841,594 for the first nine months of 2004 from $1,917,065 in the same period of 2003, for a decrease of $75,471 or 4%. The change was primarily due to the sale of property in March and September of 2004.
Depreciation expense fell to $505,938 in the first nine months of 2004 from $510,000 in the same period of 2003, for a decrease of $4,062 or 0.8%. The change is principally due to decreased depreciation due to the sale of property in March and September of 2004.
Operating expenses, other than depreciation and interest, fell to $206,221 in the first nine months of 2004 from $263,591 in the same period of 2003, for a decrease of $57,370 or 22%.
Financial Condition, Liquidity and Capital Resources
Liquidity describes the ability of a company to generate sufficient cash flows to meet the cash requirements of business operations. The Corporation’s main source of liquidity is lease income. Cash outflows consist of payments for operating expenses, interest expense, income taxes, and repayment of mortgage borrowings. The Corporation’s
7
cash flow from operations was $658,663 for the first nine months of 2004 compared to $721,890 for the same period of 2003.
As of September 30, 2004, the Corporation’s main source of liquidity consists of $109,838 cash. In addition, the Corporation owns unencumbered real estate having an aggregate book value of approximately $33,068,669. Management believes that its cash flow from operations and these other potential sources of cash will be sufficient to finance current and projected operations.
The Corporation has not paid dividends to its shareholders.
Off-Balance Sheet Arrangements
The Corporation does not have any off-balance sheet arrangements.
Recent Accounting Pronouncements
There were no significant recent accounting pronouncements that would affect the Corporation in this period.
Item 3 - Controls and Procedures.
The Corporation maintains a system of disclosure controls and procedures that is designed to ensure that material information is accumulated and communicated to management, including the Corporation’s president (who is currently the Corporation’s principal executive officer and principal financial officer), as appropriate to allow timely decisions regarding required disclosure. As required, during the preparation of this report, management, with the participation of the Corporation’s president, evaluated the effectiveness of the design and operation of the Corporation’s disclosure controls and procedures. Based on this evaluation, the Corporation’s president concluded that the Corporation’s disclosure controls and procedures were not operating effectively as of the end of the period covered by this report because several reports the Corporation was required to file under the Securities Exchange Act of 1934, as amended (“Exchange Act”), had not been filed in a timely manner and others had not been filed. In connection with this evaluation, during the fourth quarter of 2005, the Corporation implemented significant changes to the Corporation’s reporting processes to ensure that relevant information is recorded, processed, summarized, and reported within the time periods specified in the rules and forms of the SEC so that the Corporation’s future periodic and other reports required by the Exchange Act will be filed on time and accurately.
Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that the Corporation’s disclosure controls and procedures will detect or uncover every situation involving the failure of persons within the Corporation to disclose material information otherwise required to be set forth in the Corporation’s periodic reports.
The Corporation’s management is also responsible for establishing and maintaining adequate internal control over financial reporting to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. There were no changes in the Corporation’s internal control over financial reporting during the quarter covered by this report that materially affected, or were reasonably likely to materially affect, the Corporation’s internal control over financial reporting. However, as noted above, during the fourth quarter of 2005, the Corporation implemented significant changes to the Corporation’s reporting processes to ensure that relevant information is recorded, processed, summarized, and reported within the time periods specified in the rules and forms of the SEC so that the Corporation’s periodic and other reports required by the Exchange Act will be filed on time and accurately.
8
There are no material pending legal proceedings to which the Corporation is a party or to which any of the Corporation’s property is subject.
Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds.
There have been no changes in the Corporation’s securities during the period covered by this report.
Item 3 - Defaults Upon Senior Securities.
There have been no defaults on any securities.
Item 4 - Submission of Matters to a Vote of Security Holders.
There were no matters presented to a vote of security holders during the period covered by this report.
None.
Exhibits.
| 3.1 | Articles of Incorporation (incorporated by reference to Exhibit 3.1 to Form SB-2 filed with the SEC on June 16, 1993) | |
| 3.2 | Bylaws (incorporated by reference to Exhibit 3.2 to Form SB-2 filed with the SEC on June 16, 1993) | |
| 31 | Certification by principal executive officer and principal financial officer pursuant to Rule 13a-14(a) | |
| 32 | Certification of principal executive officer and principal financial officer pursuant to 18 U.S.C. § 1350 | |
9
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
BANK BUILDING CORPORATION | ||||||||
DATE: May 1, 2006 | BY: | /s/ Worth Harris Carter, Jr. | ||||||
Worth Harris Carter, Jr. | ||||||||
Chairman of the Board, President, | ||||||||
Chief Executive Officer and | ||||||||
Chief Financial Officer | ||||||||
10
