UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
Quarterly Report Under Section 13 or 15(d)
of The Securities Exchange Act of 1934
For the Quarter Ended: September 30, 2004
Commission file number: 000-50609
AEI INCOME & GROWTH FUND 25 LLC
(Exact Name of Small Business Issuer as Specified in its Charter)
State of Delaware 75-3074973
(State or other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
30 East 7th Street, Suite 1300, St. Paul, Minnesota 55101
(Address of Principal Executive Offices)
(651) 227-7333
(Issuer's telephone number)
Not Applicable
(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 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 filing requirements for the past 90
days.
Yes [X] No
Transitional Small Business Disclosure Format:
Yes No [X]
AEI INCOME & GROWTH FUND 25 LLC
INDEX
PART I. Financial Information
Item 1. Balance Sheet as of September 30, 2004 and December 31, 2003
Statements for the Periods ended September 30, 2004 and 2003:
Income
Cash Flows
Changes in Members' Equity
Notes to Financial Statements
Item 2. Management's Discussion and Analysis
Item 3. Controls and Procedures
PART II. Other Information
Item 1. Legal Proceedings
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits
Signatures
AEI INCOME & GROWTH FUND 25 LLC
BALANCE SHEET
SEPTEMBER 30, 2004 AND DECEMBER 31, 2003
(Unaudited)
ASSETS
2004 2003
CURRENT ASSETS:
Cash and Cash Equivalents $ 9,047,388 $ 2,772,027
INVESTMENTS IN REAL ESTATE:
Land 4,030,683 1,152,047
Buildings and Equipment 5,450,105 2,255,992
Property Acquisition Costs 0 1,508
Accumulated Depreciation (136,566) (4,108)
----------- -----------
Net Investments in Real Estate 9,344,222 3,405,439
----------- -----------
Total Assets $18,391,610 $ 6,177,466
=========== ===========
LIABILITIES AND MEMBERS' EQUITY
CURRENT LIABILITIES:
Payable to AEI Fund Management, Inc. $ 13,638 $ 45,995
Distributions Payable 188,509 52,164
Unearned Rent 11,782 0
----------- -----------
Total Current Liabilities 213,929 98,159
----------- -----------
MEMBERS' EQUITY (DEFICIT):
Managing Members' Equity (3,447) 524
Limited Members' Equity, $1,000 per Unit;
50,000 Units authorized; 21,557 and 7,168
Units issued and outstanding in
2004 and 2003, respectively 18,181,128 6,078,783
----------- -----------
Total Members' Equity 18,177,681 6,079,307
----------- -----------
Total Liabilities and Members' Equity $18,391,610 $ 6,177,466
=========== ===========
The accompanying Notes to Financial Statements are an integral
part of this statement.
AEI INCOME & GROWTH FUND 25 LLC
STATEMENT OF INCOME
FOR THE PERIODS ENDED SEPTEMBER 30
(Unaudited)
Three Months Ended Nine Months Ended
9/30/04 9/30/03 9/30/04 9/30/03
RENTAL INCOME $ 204,613 $ 0 $ 483,634 $ 0
EXPENSES:
LLC Administration -
Affiliates 36,439 3,285 91,165 3,358
LLC Administration and
Property Management -
Unrelated Parties 2,348 154 11,579 396
Depreciation 57,027 0 132,458 0
--------- --------- --------- ---------
Total Expenses 95,814 3,439 235,202 3,754
--------- --------- --------- ---------
OPERATING INCOME (LOSS) 108,799 (3,439) 248,432 (3,754)
OTHER INCOME:
Interest Income 16,009 11,005 30,776 11,010
--------- --------- --------- ---------
NET INCOME $ 124,808 $ 7,566 $ 279,208 $ 7,256
========= ========= ========= =========
NET INCOME ALLOCATED:
Managing Members $ 3,744 $ 528 $ 8,376 $ 218
Limited Members 121,064 7,038 270,832 7,038
--------- --------- --------- ---------
$ 124,808 $ 7,566 $ 279,208 $ 7,256
========= ========= ========= =========
NET INCOME PER LLC UNIT $ 7.03 $ 3.33 $ 21.62 $ 3.33
========= ========= ========= =========
Weighted Average Units
Outstanding 17,210 2,111 12,525 2,111
========= ========= ========= =========
The accompanying Notes to Financial Statements are an integral
part of this statement.
AEI INCOME & GROWTH FUND 25 LLC
STATEMENT OF CASH FLOWS
FOR THE NINE-MONTH PERIODS ENDED SEPTEMBER 30
(Unaudited)
2004 2003
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 279,208 $ 7,256
Adjustments To Reconcile Net Income to Net Cash
Provided By Operating Activities:
Depreciation 132,458 0
Increase in Receivables 0 (9,986)
Increase (Decrease) in Payable to
AEI Fund Management, Inc. (32,357) 4,364
Increase in Unearned Rent 11,782 0
----------- -----------
Total Adjustments 111,883 (5,622)
----------- -----------
Net Cash Provided By
Operating Activities 391,091 1,634
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investments in Real Estate (6,071,241) 0
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Capital Contributions from Limited Members 14,389,092 3,462,293
Organization and Syndication Costs (2,158,348) (519,344)
Increase in Distributions Payable 136,345 5,135
Distributions to Members (411,578) (5,135)
----------- -----------
Net Cash Provided By
Financing Activities 11,955,511 2,942,949
----------- -----------
NET INCREASE IN CASH
AND CASH EQUIVALENTS 6,275,361 2,944,583
CASH AND CASH EQUIVALENTS, beginning of period 2,772,027 1,007
----------- -----------
CASH AND CASH EQUIVALENTS, end of period $ 9,047,388 $ 2,945,590
=========== ===========
The accompanying Notes to Financial Statements are an integral
part of this statement.
AEI INCOME & GROWTH FUND 25 LLC
STATEMENT OF CHANGES IN MEMBERS' EQUITY
FOR THE PERIODS ENDED SEPTEMBER 30
(Unaudited)
Limited
Member
Managing Limited Units
Members Members Total Outstanding
BALANCE, December 31, 2002 $ 1,007 $ 0 $ 1,007 0
Capital Contributions 0 3,462,293 3,462,293 3,462.29
Organization and
Syndication Costs (60) (519,284) (519,344)
Distributions (154) (4,981) (5,135)
Net Income 218 7,038 7,256
---------- ---------- ---------- ----------
BALANCE, September 30, 2003 $ 1,011 $ 2,945,066 $ 2,946,077 3,462.29
========== ========== ========== ==========
BALANCE, December 31, 2003 $ 524 $ 6,078,783 $ 6,079,307 7,167.54
Capital Contributions 0 14,389,092 14,389,092 14,389.09
Organization and
Syndication Costs 0 (2,158,348) (2,158,348)
Distributions (12,347) (399,231) (411,578)
Net Income 8,376 270,832 279,208
---------- ----------- ----------- ----------
BALANCE, September 30, 2004 $ (3,447) $18,181,128 $18,177,681 21,556.63
========== =========== =========== ==========
The accompanying Notes to Financial Statements are an integral
part of this statement.
AEI INCOME & GROWTH FUND 25 LLC
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2004
(Unaudited)
(1) The condensed statements included herein have been prepared
by the Company, without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission, and
reflect all adjustments which are, in the opinion of
management, necessary to a fair statement of the results of
operations for the interim period, on a basis consistent with
the annual audited statements. The adjustments made to these
condensed statements consist only of normal recurring
adjustments. Certain information, accounting policies, and
footnote disclosures normally included in financial
statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant
to such rules and regulations, although the Company believes
that the disclosures are adequate to make the information
presented not misleading. It is suggested that these
condensed financial statements be read in conjunction with
the financial statements and the summary of significant
accounting policies and notes thereto included in the
Company's latest annual report on Form 10-KSB.
(2) Organization -
AEI Income & Growth Fund 25 LLC (the Company), a Limited
Liability Company, was formed on June 24, 2002 to acquire
and lease commercial properties to operating tenants. The
Company's operations are managed by AEI Fund Management XXI,
Inc. (AFM), the Managing Member. Robert P. Johnson, the
President and sole director of AFM, serves as the Special
Managing Member. AFM is a wholly owned subsidiary of AEI
Capital Corporation of which Mr. Johnson is the majority
shareholder. AEI Fund Management, Inc. (AEI), an affiliate
of AFM, performs the administrative and operating functions
for the Company.
The terms of the offering call for a subscription price of
$1,000 per LLC Unit, payable on acceptance of the offer.
Under the terms of the Operating Agreement, 50,000 LLC Units
are available for subscription which, if fully subscribed,
will result in contributed Limited Members' capital of
$50,000,000. The Company commenced operations on September
11, 2003 when minimum subscriptions of 1,500 LLC Units
($1,500,000) were accepted. At September 30, 2004,
21,556.633 Units ($21,556,633) were subscribed and accepted
by the Company. The Managing Members have contributed
capital of $1,000. The Company shall continue until
December 31, 2053, unless dissolved, terminated and
liquidated prior to that date.
During operations, any Net Cash Flow, as defined, which the
Managing Members determine to distribute will be distributed
97% to the Limited Members and 3% to the Managing Members.
Distributions to Limited Members will be made pro rata by
Units.
AEI INCOME & GROWTH FUND 25 LLC
NOTES TO FINANCIAL STATEMENTS
(Continued)
(2) Organization - (Continued)
Any Net Proceeds of Sale, as defined, from the sale or
financing of properties which the Managing Members determine
to distribute will, after provisions for debts and reserves,
be paid in the following manner: (i) first, 99% to the
Limited Members and 1% to the Managing Members until the
Limited Members receive an amount equal to: (a) their
Adjusted Capital Contribution plus (b) an amount equal to 7%
of their Adjusted Capital Contribution per annum, cumulative
but not compounded, to the extent not previously distributed
from Net Cash Flow; (ii) any remaining balance will be
distributed 90% to the Limited Members and 10% to the
Managing Members. Distributions to the Limited Members will
be made pro rata by Units.
For tax purposes, profits from operations, other than
profits attributable to the sale, exchange, financing,
refinancing or other disposition of property, will be
allocated 97% to the Limited Members and 3% to the Managing
Members. Net losses from operations will be allocated 99%
to the Limited Members and 1% to the Managing Members.
For tax purposes, profits arising from the sale, financing,
or other disposition of property will be allocated in
accordance with the Operating Agreement as follows: (i)
first, to those Members with deficit balances in their
capital accounts in an amount equal to the sum of such
deficit balances; (ii) second, 99% to the Limited Members
and 1% to the Managing Members until the aggregate balance
in the Limited Members' capital accounts equals the sum of
the Limited Members' Adjusted Capital Contributions plus an
amount equal to 7% of their Adjusted Capital Contributions
per annum, cumulative but not compounded, to the extent not
previously allocated; (iii) third, the balance of any
remaining gain will then be allocated 90% to the Limited
Members and 10% to the Managing Members. Losses will be
allocated 99% to the Limited Members and 1% to the Managing
Members.
The Managing Members are not required to currently fund a
deficit capital balance. Upon liquidation of the Company or
withdrawal by a Managing Member, the Managing Members will
contribute to the Company an amount equal to the lesser of
the deficit balances in their capital accounts or 1.01% of
the total capital contributions of the Limited Members over
the amount previously contributed by the Managing Members.
(3) Investments in Real Estate -
On December 9, 2003, the Company purchased a 50% interest in
a Johnny Carino's restaurant in Lake Charles, Louisiana for
$1,146,533. The property is leased to Kona Restaurant
Group, Inc. under a Lease Agreement with a primary term of
17 years and annual rental payments of $106,375. The
remaining interest in the property was purchased by AEI
Private Net Lease Millennium Fund Limited Partnership, an
affiliate of the Company.
AEI INCOME & GROWTH FUND 25 LLC
NOTES TO FINANCIAL STATEMENTS
(Continued)
(3) Investments in Real Estate - (Continued)
On December 10, 2003, the Company purchased a 75% interest
in a Tia's Tex-Mex restaurant in Brandon, Florida for
$2,261,506. The property is leased to Tia's Florida, LLC
under a Lease Agreement with a primary term of 15 years and
annual rental payments of $229,500. The remaining interest
in the property was purchased by AEI Accredited Investor
Fund 2002 Limited Partnership, an affiliate of the Company.
On February 6, 2004, the Company purchased a 21% interest in
a Jared Jewelry store in Madison Heights, Michigan for
$851,239. The property is leased to Sterling Jewelers LLC
under a Lease Agreement with a primary term of 20 years and
annual rental payments of $65,541. The purchase price and
annual rental payments shown are approximately 10% less than
amounts reported prior to June 30, 2004. As part of an
agreement between the lessee and the property developer, the
monthly rent was reduced by approximately 10% based on a
final accounting of the development costs. As part of the
purchase agreement between the property developer and the
Company, the purchase price paid by the Company was reduced
by the same percentage so the rate of return realized by the
Company remains the same. The remaining interests in the
property were purchased by AEI Income & Growth Fund 23 LLC
and AEI Accredited Investor Fund 2002 Limited Partnership,
affiliates of the Company.
On February 6, 2004, the Company purchased a 25% interest in
a Jared Jewelry store in Goodlettsville, Tennessee for
$986,122. The property is leased to Sterling Jewelers Inc.
under a Lease Agreement with a primary term of 20 years and
annual rental payments of $75,840. The remaining interest
in the property was purchased by AEI Accredited Investor
Fund 2002 Limited Partnership.
On February 20, 2004, the Company purchased a 50% interest
in a parcel of land in Kansas City, Missouri for $650,000.
The Company obtained title to the land in the form of an
undivided fee simple interest in the 50% interest purchased.
The land is leased to SWH Corporation (SWH) under a Lease
Agreement with a primary term of 20 years and annual rental
payments of $39,000. Simultaneously with the purchase of
the land, the Company entered into a Development Financing
Agreement under which the Company advanced funds to SWH for
the construction of a Mimi's Cafe restaurant on the site.
Pursuant to the Lease, any improvements to the land during
the term of the Lease become the property of the lessor.
The Company charged interest on the advances at a rate of
6%. On June 30, 2004, after the development was completed,
the Lease Agreement was amended to require annual rental
payments of $101,750. The Company's share of the total
acquisition costs, including the cost of the land, was
$1,107,344. The remaining interest in the property was
purchased by AEI Accredited Investor Fund 2002 Limited
Partnership.
On April 30, 2004, the Company purchased an Applebee's
restaurant in Macedonia, Ohio for $3,128,044. The property
is leased to Apple Ohio LLC under a Lease Agreement with a
primary term of 20 years and annual rental payments of
$238,673.
AEI INCOME & GROWTH FUND 25 LLC
NOTES TO FINANCIAL STATEMENTS
(Continued)
(3) Investments in Real Estate - (Continued)
Subsequent to September 30, 2004, the Company purchased a
parcel of land in Pueblo, Colorado for $622,500. The
Company obtained title to the land in the form of an
undivided fee simple interest. The land is leased to Kona
Restaurant Group (KRG) under a Lease Agreement with a
primary term of 17 years and annual rental payments of
$35,794. Simultaneously with the purchase of the land, the
Company entered into a Development Financing Agreement under
which the Company will advance funds to KRG for the
construction of a Johnny Carino's restaurant on the site.
Pursuant to the Lease, any improvements to the land during
the term of the Lease become the property of the lessor.
The total purchase price, including the cost of the land,
will be approximately $2,425,000. After the construction is
complete, the Lease Agreement will be amended to require
annual rental payments of approximately $196,000.
(4) Payable to AEI Fund Management, Inc. -
AEI Fund Management, Inc. performs the administrative and
operating functions for the Company. The payable to AEI
Fund Management represents the balance due for those
services. This balance is non-interest bearing and
unsecured and is to be paid in the normal course of
business.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS.
The Management's Discussion and Analysis contains various
"forward looking statements" within the meaning of federal
securities laws which represent management's expectations or
beliefs concerning future events, including statements regarding
anticipated application of cash, expected returns from rental
income, growth in revenue, taxation levels, the sufficiency of
cash to meet operating expenses, rates of distribution, and other
matters. These, and other forward looking statements made by our
managers, must be evaluated in the context of a number of factors
that may affect our financial condition and results of
operations, including the following:
Market and economic conditions which affect the value
of the properties we own and the cash from rental
income such properties generate;
the federal income tax consequences of rental income,
deductions, gain on sales and other items and the
affects of these consequences for members;
resolution by our managers of conflicts with which they
may be confronted;
the success of our managers of locating properties with
favorable risk return characteristics;
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS. (Continued)
the effect of tenant defaults; and
the condition of the industries in which the tenants of
properties owned by the Company operate.
The Application of Critical Accounting Policies
The preparation of the Company's financial statements
requires management to make estimates and assumptions that may
affect the reported amounts of assets, liabilities, revenues and
expenses, and related disclosure of contingent assets and
liabilities. Management evaluates these estimates on an ongoing
basis, including those related to the carrying value of real
estate and the allocation by AEI Fund Management, Inc. of
expenses to the Company as opposed to other funds they manage.
The Company purchases properties and records them in the
financial statements at the lower of cost or estimated realizable
value. The Company initially records the properties at cost
(including capitalized acquisition expenses). The Company is
required to periodically evaluate the carrying value of
properties to determine whether their realizable value has
declined. For properties the Company will hold and operate,
management determines whether impairment has occurred by
comparing the property's probability-weighted cash flows to its
current carrying value. For properties held for sale, management
determines whether impairment has occurred by comparing the
property's estimated fair value less cost to sell to its current
carrying value. If the carrying value is greater than the
realizable value, an impairment loss is recorded to reduce the
carrying value of the property to its realizable value. A change
in these assumptions or analysis could cause material changes in
the carrying value of the properties.
AEI Fund Management Inc. allocates expenses to each of the
funds they manage primarily on the basis of the number of hours
devoted by their employees to each fund's affairs. They also
allocate expenses at the end of each month that are not directly
related to a fund's operations based upon the number of investors
in the fund and the fund's capitalization relative to other funds
they manage. The Company reimburses these expenses subject to
detailed limitations contained in the Operating Agreement.
Management of the Company has discussed the development
and selection of the above accounting estimates and the
management discussion and analysis disclosures regarding them
with the managing member of the Company.
Results of Operations
The Company was organized on June 24, 2002. From this
date until initial subscription proceeds of $2,110,547 were
released from escrow on September 11, 2003, the Company had
received only $1,000 of capital from the Managing Members, had
not conducted any business operations other than those related to
the offering and sale of units and had not admitted any investors
as Limited Members.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS. (Continued)
For the nine months ended September 30, 2004, the Company
recognized rental income of $483,634 representing nine months
rent from two properties and rent from four properties acquired
during the period. At September 30, 2004, the scheduled annual
rent for the six properties was $817,679.
For the nine months ended September 30, 2004 and 2003, the
Company incurred LLC administration expenses from affiliated
parties of $91,165 and $3,358, respectively. These
administration expenses included initial start-up costs and
expenses associated with the management of the properties,
processing distributions, reporting requirements and
correspondence to the Limited Members. During the same periods,
the Company incurred LLC administration and property management
expenses from unrelated parties of $11,579 and $396,
respectively. These expenses represented direct payments to
third parties for legal and filing fees, direct administrative
costs, outside audit and accounting costs, taxes, insurance and
other property costs. As the Company raises additional
subscription proceeds and purchases additional properties, the
administration and property management expenses increase.
For the nine months ended September 30, 2004 and 2003, the
Company recognized interest income of $30,776 and $11,010,
respectively, from subscription proceeds temporarily invested in
a money market account and from construction advances.
Inflation has had a minimal effect on income from
operations. Leases may contain rent increases, based on the
increase in the Consumer Price Index over a specified period,
which will result in an increase in rental income over the term
of the leases. In addition, leases may contain rent clauses
which entitle the Company to receive additional rent in future
years if gross receipts for the property exceed certain specified
amounts. Increases in sales volumes of the tenants, due to
inflation and real sales growth, may result in an increase in
rental income over the term of the leases. Inflation also may
cause the real estate to appreciate in value. However, inflation
and changing prices may have an adverse impact on the operating
margins of the properties' tenants, which could impair their
ability to pay rent and subsequently reduce the Net Cash Flow
available for distributions.
Liquidity and Capital Resources
The Company's primary sources of cash are proceeds from
the sale of Units, interest income, rental income and proceeds
from the sale of property. Its primary uses of cash are
investment in real properties, payment of expenses involved in
the sale of Units, the organization of the Company, the
management of properties, the administration of the Company, and
the payment of distributions.
The Company generated $391,091 of cash from operations
during the nine months ended September 30, 2004, representing net
income of $279,208 and a non-cash expense of $132,458 for
depreciation, which were partially offset by $20,575 of net
timing differences in the collection of payments from the lessees
and the payment of expenses. The Company generated $1,634 of
cash from operations during the nine months ended September 30,
2003, representing net income of $7,256, which was partially
offset by $5,622 of net timing differences in the collection of
payments from the lessees and the payment of expenses.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS. (Continued)
The major components of the Company's cash flow from
investing activities are investments in real estate and proceeds
from the sale of real estate. During the fourth quarter of 2003,
the Company expended $3,409,547 to invest in real properties
(inclusive of acquisition expenses). On December 9, 2003, the
Company purchased a 50% interest in a Johnny Carino's restaurant
in Lake Charles, Louisiana for $1,146,533. On December 10, 2003,
the Company purchased a 75% interest in a Tia's Tex-Mex
restaurant in Brandon, Florida for $2,261,506.
During the nine months ended September 30, 2004, the
Company expended $6,071,241 to invest in real properties
(inclusive of acquisition expenses). On February 6, 2004, the
Company purchased a 21% interest in a Jared Jewelry store in
Madison Heights, Michigan for $851,239, and a 25% interest in a
Jared Jewelry store in Goodlettsville, Tennessee for $986,122.
On April 30, 2004, the Company purchased an Applebee's restaurant
in Macedonia, Ohio for $3,128,044.
On February 20, 2004, the Company purchased a 50% interest
in a parcel of land for $650,000. The Company obtained title to
the land in the form of an undivided fee simple interest in the
50% interest purchased. Simultaneously with the purchase of the
land, the Company entered into a Development Financing Agreement
under which the Company advanced funds to SWH for the
construction of a Mimi's Cafe restaurant on the site. Pursuant
to the Lease, any improvements to the land during the term of the
Lease become the property of the lessor. The Company charged
interest on the advances at a rate of 6%. The Company's share of
the total acquisition costs, including the cost of the land, was
$1,107,344.
During the offering of Units, the Company's primary source
of cash flow will be from the sale of LLC Units. The Company
commenced the offering of LLC Units to the public through a
registration statement that became effective May 13, 2003 and
will continue until May 12, 2005 unless all 50,000 LLC Units are
sold before then. Through September 30, 2004, the Company raised
a total of $21,556,633 from the sale of 21,556.633 Units. From
subscription proceeds, the Company paid organization and
syndication costs (which constitute a reduction of capital) of
$3,233,479.
After completion of the acquisition phase, the Company's
primary use of cash flow is distribution and redemption payments
to Members. The Company declares its regular quarterly
distributions before the end of each quarter and pays the
distribution in the first ten days after the end of each quarter.
For the nine months ended September 30, 2004, the Company
declared distributions of $411,578, which were distributed 97% to
Limited Members and 3% to the Managing Members.
Beginning in September 2006, the Company may acquire Units
from Limited Members who have tendered their Units to the
Company. Such Units may be acquired at a discount. The Company
will not be obligated to purchase in any year more than 2% of the
total number of Units outstanding on January 1 of such year. In
no event shall the Company be obligated to purchase Units if, in
the sole discretion of the Managing Member, such purchase would
impair the capital or operation of the Company.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS. (Continued)
The Operating Agreement requires that all proceeds from
the sale of Units, subject to a reasonable reserve for ongoing
operations, be invested or committed to investment in properties
by the later of two years after the date the offering of units
commences or twelve months after the offering terminates.
Although the Company had no formal contractual commitments to
expend capital at September 30, 2004, it entered into one
commitment after this date.
Subsequent to September 30, 2004, the Company purchased a
parcel of land in Pueblo, Colorado for $622,500. The Company
obtained title to the land in the form of an undivided fee simple
interest. The land is leased to Kona Restaurant Group (KRG)
under a Lease Agreement with a primary term of 17 years and
annual rental payments of $35,794. Simultaneously with the
purchase of the land, the Company entered into a Development
Financing Agreement under which the Company will advance funds to
KRG for the construction of a Johnny Carino's restaurant on the
site. Pursuant to the Lease, any improvements to the land during
the term of the Lease become the property of the lessor. The
total purchase price, including the cost of the land, will be
approximately $2,425,000. After the construction is complete,
the Lease Agreement will be amended to require annual rental
payments of approximately $196,000.
Until capital is invested in properties, the Company will
remain extremely liquid. After completion of property
acquisitions, the Company will attempt to maintain a cash reserve
of only approximately 1% of subscription proceeds. Because
properties are purchased for cash and leased under triple-net
leases, this is considered adequate to satisfy most
contingencies.
ITEM 3. CONTROLS AND PROCEDURES.
(a) Evaluation of disclosure controls and procedures
Under the supervision and with the participation of
management, including its President and Chief Financial Officer,
the Managing Member of the Company evaluated the effectiveness of
the design and operation of its disclosure controls and
procedures (as defined in Rule 13a-14(c) under the Exchange Act).
Based upon that evaluation, the President and Chief Financial
Officer of the Managing Member concluded that, as of the end of
the period covered by this report, the disclosure controls and
procedures of the Company are adequately designed to ensure that
information required to be disclosed by us in the reports we file
or submit under the Exchange Act is recorded, processed,
summarized and reported, within the time periods specified in
applicable rules and forms.
(b) Changes in internal controls
There were no significant changes made in the Company's
internal controls during the most recent period covered by this
report that have materially affected, or are reasonably likely to
materially affect, the Company's internal control over financial
reporting.
PART II - OTHER INFORMATION
ITEM 1.LEGAL PROCEEDINGS
There are no material pending legal proceedings to which
the Company is a party or of which the Company's property is
subject.
ITEM 2.UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF
PROCEEDS
(a) During the period covered by this report, the Company
did not sell any equity securities that are not registered under
the Securities Act of 1933.
(b) The registration statement for the offering (No. 333-
99677) was declared effective on May 13, 2003. The offering
commenced on May 13, 2003 and is ongoing. AEI Securities, Inc.
(ASI) is the dealer manager of the offering. The registration
statement covers 50,000 Units of limited liability company
interest at an aggregate price of up to $50 million. Through
September 30, 2004, the Company had sold 21,556.633 Units for
gross offering proceeds of $21,556,633.
From gross offering proceeds, the Company paid $2,145,349
in selling commissions to ASI, an affiliate of the Managing
Members. Of this amount, $1,526,603 was re-allowed by ASI to
participating broker/dealers not affiliated with the Managing
Members. The gross offering proceeds were further reduced by
underwriting discounts of $10,298 and other organization and
syndication costs of $1,077,832 of which $676,301 was paid to AEI
Fund Management, Inc., an affiliate of the Managing Members, for
costs incurred in connection with managing the Company's offering
and organization. From inception to September 30, 2004, the
Company paid commissions, organization and syndication costs
totaling $3,233,479.
From the net offering proceeds, the Company expended
$9,480,788 to acquire real estate of which $9,392,223 represented
cash paid to unaffiliated sellers of real estate and $88,565
represented cash paid to reimburse AEI Fund Management, Inc. for
costs and direct expenses incurred by it in acquiring properties
on behalf of the Company.
(c) During the period covered by this report, the Company
did not purchase any Units.
ITEM 3.DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4.SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5.OTHER INFORMATION
None.
PART II - OTHER INFORMATION
(Continued)
ITEM 6. EXHIBITS
10.1 Development Financing Agreement dated November 2, 2004
between the Company and Kona Restaurant Group, Inc. relating
to the Property at 5700 North Elizabeth Street, Pueblo,
Colorado.
10.2 Net Lease Agreement dated November 2, 2004 between the
Company and Kona Restaurant Group, Inc. relating to the
Property at 5700 North Elizabeth Street, Pueblo, Colorado.
31.1 Certification of Chief Executive Officer of Managing
Member pursuant to Rule 15d-14(a)(17 CFR 240.15d-14(a)) and
Section 302 of the Sarbanes-Oxley Act of 2002.
31.2 Certification of Chief Financial Officer of Managing
Member pursuant to Rule 15d-14(a)(17 CFR 240.15d-14(a)) and
Section 302 of the Sarbanes-Oxley Act of 2002.
32 Certification of Chief Executive Officer and Chief
Financial Officer of Managing Member pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.
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.
Dated: November 10, 2004 AEI Income & Growth Fund 25 LLC
By: AEI Fund Management XXI, Inc.
Its: Managing Member
By: /s/ Robert P Johnson
Robert P. Johnson
President
(Principal Executive Officer)
By: /s/ Patrick W Keene
Patrick W. Keene
Chief Financial Officer
(Principal Accounting Officer)