SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-QSB - ------------------------------------------------------------------------------- [X] Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Quarterly Period Ended March 31, 2001 or [ ] Transition Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Transition Period from ------------to------------ - ------------------------------------------------------------------------------- Commission File Number 33-87570 I.R.S. Employer Identification Number 41-1793975 American Church Mortgage Company Incorporated Under the Laws of the State of Minnesota 10237 Yellow Circle Drive Minnetonka, MN 55343 Telephone: (612) 945-9455 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such requirements for the past 90 days. Yes X No ___ The number of shares outstanding of the Registrant's stock as of April 30, 2001 was: 1,498,624 Shares of Common Stock Outstanding 1 AMERICAN CHURCH MORTGAGE COMPANY INDEX Page No. PART I. FINANCIAL INFORMATION Item 1. Financial Statements: Balance Sheets March 31, 2001 and December 31, 2000.......3 Statements of Operations Three Month Periods Ended March 31, 2001 and 2000...... 4 Statements of Cash Flows Three Months Ended March 31, 2001 and 2000..............5 Statement of Stockholder's Equity.........................6 Notes to Financial Statements ........................... 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations .................... 10 PART II. OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders...............12 Item 6. Exhibits and Reports on Form 8-K .................................12 Signatures...............................................12 2 ITEM 1. FINANCIAL STATEMENTS AMERICAN CHURCH MORTGAGE COMPANY BALANCE SHEETS - ------------------------------------------------------------------------------- March 31, December 31, 2001 2000 ------------ ------------ (Unaudited) (Audited) Assets: Current Assets Cash and Cash Equivalents.............................. $ 509,073 $ 213,084 Current Maturities of Loans Receivable................ 282,319 276,565 Current Maturities of Bonds Receivable................. 28,000 27,000 Accounts Receivable.................................... 12,174 9,892 Interest Receivable.................................... 66,200 15,651 Prepaids............................................... 9,372 9,110 ------------ ----------- Total current Assets: 907,138 551,302 Loans Receivable, net of current maturities & reserves. 11,392,039 11,463,484 Bonds receivable....................................... 2,402,231 2,262,962 Deferred Tax Asset..................................... 60,000 60,000 ----------- ----------- Total Assets: $ 14,761,408 $ 14,337,748 =========== ========== Liabilities and Shareholders' Equity: Current Liabilities: Line of Credit......................................... $ 699,653 $ 399,653 Accounts Payable....................................... 30,074 80,775 Management Fee Payable................................. - 0 - 36,222 Deferred Income........................................ 20,611 21,174 Dividends Payable...................................... 315,113 293,629 ----------- ---------- Total current Liabilities:......................... 1,065,451 831,453 Deferred Income........................................ 186,855 191,885 Shareholders' Equity Common stock, par value $.01 per share; authorized 30,000,000 shares; issued and outstanding 1,488,344 as of March 31, 2001, 1,322,289 shares as of December 31, 2000................................. 14,883 14,698 Additional Paid in Capital............................. 13,629,968 13,454,746 Accumulated Deficit.................................... (135,749) (155,034) ------------- ----------- Total Shareholders' Equity: 13,509,102 13,314,410 ----------- ---------- $ 14,761,408 $ 14,337,748 =========== ========== Notes to Financial Statements are an integral part of this Statement. 3 AMERICAN CHURCH MORTGAGE COMPANY UNAUDITED STATEMENTS OF OPERATIONS - ------------------------------------------------------------------------------- Three Months Ended March 31, March 31, 2001 2000 ---- ---- Revenues Interest Income Loans........................... $ 291,568 $ 270,952 Interest Income Other....................... 106,786 67,080 Capital Gains Realized.......................... 307 558 Origination Income.............................. 6,740 6,373 --------- --------- Total Revenues: 405,401 344,963 Expenses Professional fees............................... 43,534 41,022 Director fees................................... 800 800 Interest Expense................................ 16,685 18,024 Other........................................... 9,984 5,006 -------- --------- Total Expenses: 71,003 64,852 Provision for Income Taxes........................... - 0 - - 0 - ---------- --------- Net Income .......................................... $ 334,398 $ 280,111 ========= ========= Income Per Common Share.............................. $ .23 $ .20 Weighted Average Common Shares Outstanding.................................... 1,482,312 1,378,249 Dividends Declared................................... $ 315,113 $ 306,723 Notes to Financial Statements are an integral part of this Statement. 4 AMERICAN CHURCH MORTGAGE COMPANY UNAUDITED STATEMENTS OF CASH FLOWS - ------------------------------------------------------------------------------- For the Three For the Three Months Ended Months Ended March 31, March 31, 2001 2000 ---- ---- Cash Flows From Operating Activities Net Income $ 334,398 $ 280,111 Adjustments to reconcile net income to net cash used in operating activities: Loan Loss Reserve 2,555 - 0 - Change in assets and liabilities: Deferred income (5,593) 17,342 Accounts receivable (52,832) (20,493) Prepaids (262) 1,250 Increase in accounts payable (86,923) 1,375 ------------ --------- Net cash from operating activities 191,343 279,585 Cash Flows From Investing Activities Investment in mortgage loans - 0 - (950,000) Collections of mortgage loans 63,136 52,014 Investment in bonds (308,000) - 0 - Proceeds from bond portfolio 167,732 (237) ----------- ------------- Net cash used for investing activities (77,132) (898,223) Cash Flows From Financing Activities Net borrowing on line of credit 300,000 300,000 Proceeds from stock offering 175,407 656,571 Dividends Paid (293,629) (274,280) -------- -------- Net cash from financing activities 181,778 682,291 Net increase in cash 295,989 63,653 Cash Beginning of period 213,084 382,765 -------- -------- End of period $ 509,073 $ 446,418 ======== ======== Supplemental Schedule of Noncash Financing Activities: Dividends declared but not paid $ 315,113 $ 306,723 -------- --------- Notes to Financial Statements are an integral part of this Statement. 5 AMERICAN CHURCH MORTGAGE COMPANY UNAUDITED STATEMENT OF SHAREHOLDERS' EQUITY - ------------------------------------------------------------------------------- Additional Common Stock Paid-In Accumulated Shares Amount Capital Deficit Balance, December 31, 2000 1,469,817 $ 14,698 $ 13,454,746 $ (155,034) Issuance of 18,527 shares of common stock, net of offering costs 18,527 185 175,222 Net Income 334,398 Dividends declared (315,113) ---------- --------- ------------- ---------- Balance, March 31, 2001(unaudited) 1,488,344 $ 14,883 $ 13,629,968 $ (135,749) Notes to Financial Statements are an integral part of this Statement. 6 AMERICAN CHURCH MORTGAGE COMPANY NOTES TO UNAUDITED FINANCIAL STATEMENTS MARCH 31, 2001 - ------------------------------------------------------------------------------- 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation The accompanying unaudited financial statements have been prepared in accordance with the instructions for interim statements and, therefore, do not include all information and disclosures necessary for a fair presentation of results of operations, financial position, and changes in cash flow in conformity with generally accepted accounting principles. However, in the opinion of management, such statements reflect all adjustments (which include only normal recurring adjustments) necessary for a fair presentation of financial position, results of operations, and cash flows for the period presented. The unaudited consolidated financial statements of the Company should be read in conjunction with its December 31, 2000 audited financial statements included in the Company's Annual Report on Form 10-KSB, as filed with the Securities and Exchange Commission for the year ended December 31, 2000. Nature of Business American Church Mortgage Company, a Minnesota corporation, was incorporated on May 27, 1994. The Company was organized to engage primarily in the business of making mortgage loans to churches and other nonprofit religious organizations throughout the United States, on terms that it establishes for individual organizations. Accounting Estimates Management uses estimates and assumptions in preparing these financial statements in accordance with generally accepted accounting principles. Those estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported revenues and expenses. Actual results could differ from those estimates. Cash The Company considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents. The Company maintains its accounts primarily at two financial institutions. At times throughout the year, the Company's cash and equivalents balances may exceed amounts insured by the Federal Deposit Insurance Corporation. Cash in money market funds is not Federally insured. The Company has not experienced any losses in such accounts. Bond Portfolio The Company accounts for its bond portfolio under Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities." The Company classified its bond portfolio as "available-for-sale". Available-for-sale bonds are carried at fair value. Although no ready public market for these bonds exists, management believes that their cost approximates their fair value. During the three month period ended March 31, 2001, the Company bought $308,000 bonds at par. In addition, during the same three month period, the Company sold $143,000 of its bonds at par, which was the same as amortized cost, to an affiliate of the Advisor (see note 4). There were no gains or losses on the sale. 7 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued Allowance for Mortgage Loans Receivable The Company follows a policy of providing an allowance for mortgage loans receivable. At March 31, 2001, the Company followed its loan reserve policy and provided $2,555 for one mortgage loan which is three mortgage payments in arrears. In addition, the Company expensed $2,778 of interest due and payable but never received from the same mortgage loan in arrears. Organizational Expenses Organizational expenses were stated at cost net of amortization and were amortized using the straight-line method over five years. Deferred Income Deferred income represents loan origination fees which are recognized over the life of the loan as an adjustment to the yield on the loan. Income Taxes Income taxes are provided for the tax effects of transactions reported in the financial statements and consist of taxes currently due plus deferred taxes related primarily to differences in recognition of income from loan origination fees for financial and income tax reporting. Deferred taxes are recognized for operating losses that are available to offset future taxable income. The Company has elected to be taxed as a Real Estate Investment Trust (REIT). Accordingly, the Company will not be subject to Federal income tax to the extent of distributions to its shareholders if the Company meets all the requirements under the REIT provisions of the Internal Revenue Code. Income Per Common Share No adjustments were made to income for the purpose of calculating earnings per share. Stock options had no effect on the weighted average number of shares outstanding. 2. MORTGAGE LOANS AND BOND PORTFOLIO At March 31, 2001, the Company had mortgage loans receivable totaling $11,676,913. The loans bear interest ranging from 9.50% to 12.00%. The Company also had a portfolio of secured church bonds at March 31, 2001 which are carried at cost plus amortized interest income. The bonds pay either semi-annual or quarterly interest ranging from 5.75% to 10.50%. The combined principal of $2,440,000 at March 31, 2001 is due at various maturity dates between May 1, 2001 and April 1, 2019. The maturity schedule for mortgage loans and bonds receivable as of March 31, 2001 is as follows: Mortgage Loans Bond Portfolio 2002 $ 282,319 $ 28,000 2003 319,858 65,000 2004 352,411 98,000 2005 391,416 56,000 2006 434,756 53,000 Thereafter 9,896,153 2,140,000 Less loan loss reserve (2,555) Less discounts from par (9,769) ---------- ---------- Totals $11,674,358 $2,430,231 ========== ========= 8 3. STOCK OPTION PLAN The Company adopted a Stock Option Plan granting each member of the Board of Directors and the president of the Advisor (Note 4) an option to purchase 3,000 shares of common stock annually upon their re-election. The purchase price of the stock was to be the fair market value at the grant date. Options outstanding are 105,000 shares at a price of $10 per share at March 31, 2001. These options became exercisable November 15, 1996 and incrementally at one year intervals after the date of grant and expire November 15, 2001 through November 15, 2005. No options were exercised as of March 31, 2001. The Company has chosen to account for stock based compensation in accordance with APB Opinion 25. Management believes that the disclosure requirements of Statement of Financial Accounting Standards No. 123 are not material to its financial statements. 4. TRANSACTIONS WITH AFFILIATES The Company has an Advisory Agreement with Church Loan Advisors, Inc., Minnetonka, Minnesota ("Advisor"). The Advisor is responsible for the day-to-day operations of the Company and provides office space, administrative services and personnel. Under the terms of the Advisory Agreement, the Company pays the Advisor an annual base management fee of 1.25 percent of average invested assets (generally defined as the average of the aggregate book value of the assets invested in securities and equity interests in and loans secured by real estate), which is payable on a monthly basis. The Advisor will also receive one-half of the origination fees paid by a mortgage loan borrower in connection with a mortgage loan made or renewed by the Company. The Company paid to the Advisor management and origination fees totaling $36,558 and $0 through March 31, 2001. The Advisor and the Company are related through common ownership and common management. See Notes 1 and 6. 5. PUBLIC OFFERINGS OF THE COMPANY'S COMMON STOCK The Company filed a Registration Statement with the Securities and Exchange Commission for a third public offering of its common stock in August 1999. The Company offered to sell 1,500,000 shares of its common stock at a price of $10 per share. The offering is being underwritten by an underwriter (an affiliate of the Advisor) on a "best efforts" basis, and no minimum sale of stock was required. The stock sale commenced on September 23, 1999. A total of 189,407 shares have been sold through March 31, 2001. 6. FAIR VALUE OF FINANCIAL INSTRUMENTS The estimated fair value of the Company's financial instruments, none of which are held for trading purposes, are as follows: March 31, 2001 December 31, 2000 ------------------------------- --------------------------- Carrying Fair Carrying Fair Amount Value Amount Value ---------- ---------- ---------- --------- Cash and equivalents $ 509,073 $ 509,073 $ 213,084 $ 213,084 Accounts receivable 12,174 12,174 9,892 9,892 Mortgage loans receivable 11,674,358 11,674,358 11,740,049 11,740,049 Bond portfolio 2,430,231 2,430,231 2,289,962 2,289,962 The carrying value of cash and equivalents approximates fair value. The fair value of the mortgage loans receivable and the bond portfolio are estimated by discounting future cash flows using current discount rates that reflect the risks associated with similar types of loans. 8. LINE OF CREDIT The Company has obtained a $1,000,000 line of credit with its bank on July 22, 1999, subject to certain borrowing base limitations, through August 1, 2001. Interest is charged at 1% over the prime rate totaling 8.50% at March 31, 2001. The line of credit is collateralized by the mortgage secured bonds held by the Company. Outstanding borrowings were $699,653 at March 31, 2001. 9 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS AMERICAN CHURCH MORTGAGE COMPANY Plan of Operation We were founded in May 1994 and began a "best efforts" offering of our common stock on July 11, 1995, and commenced active business operations on April 15, 1996 after completion of the "Minimum Amount" in our initial public offering (described below). Consequently, for the years ended December 31, 1994 and 1995, we had no operating revenues, and expenses were limited to organizational and offering-related costs. On July 11, 1995, the Securities and Exchange Commission declared effective our offering of 2,000,000 common shares at a price of $10.00 per share. We achieved the Minimum Offering of at least 200,000 shares ($2,000,000) sold to not less than 100 individuals (the "Minimum Offering") on April 15, 1996. Until the Minimum Offering was achieved, we could not commence our active business of making mortgage loans to churches. Consequently, business operations from inception (May 27, 1994) to completion of the Minimum Offering (April 15, 1996) were limited to daily business organizational efforts, activities relating to the offering, reviewing potential candidates for church mortgage loans to be made by us once the Minimum Offering was achieved, and conducting informational meetings with brokers and broker-dealers identified to us by the Dealer/Manager--American Investors Group, Inc. ("American"), an affiliate of ours. We concluded our initial public offering on November 8, 1996. As of such date we had sold 335,481 shares to approximately 281 individuals, not including 20,000 shares ($200,000) previously purchased by our initial shareholder -- DRM Holdings, Inc. On September 26, 1997, the Securities and Exchange Commission declared effective our second public offering of 1,500,000 common shares at a price of $10.00 per share ($15,000,000) under SEC File 333-27601. The Offering was co-underwritten by American Investors Group, Inc. and LaSalle St. Securities, Inc., ("LaSalle"). American acted in the capacity of the Managing Underwriter and is an affiliate of ours. The Offering was conducted on a"best-efforts" basis pursuant to applicable rules of the Securities and Exchange Commission. We concluded our second public offering on January 22, 1999. We sold 799,759 shares during our second public offering. On September 23, 1999 the Securities and Exchange Commission declared effective our third public offering of 1,500,000 common shares at a price of $10.00 per shares ($15,000,000) under SEC files 333-81819. The Offering is being conducted on a "best-efforts" basis pursuant to applicable rules of the Securities and Exchange Commission. As of March 31, 2001 we had sold 284,469 shares and had 1,483,344 shares outstanding and approximately 773 individual shareholders. We currently have thirty first mortgage loans aggregating $11,528,750 in principal amount, four second mortgage loans aggregating $845,000 in principal amount and $2,440,000 in principal amount of first mortgage bonds issued by churches. Funding of additional first mortgage loans is expected to continue on an on-going basis as more investable assets become available through (i) the sale of additional shares in future public offerings; (ii) prepayment and repayment at maturity of existing loans; (iv) borrowed funds; and (v) dividends reinvested under the Dividend Reinvestment Plan. Results of Operations During the three month period ended March 31, 2001 our total assets increased by $423,660 due primarily to sale of our common stock. Total liabilities increased by $228,968 due to dividends declared but not yet paid as of March 31, 2001 and increased borrowings on our line of credit. All loans we have made range in interest rate charged to the borrowers from 9.50% to 12.00%. As of March 31, 2001, the average, principal-adjusted interest rate on the Company's portfolio of loans was 10.41%. The Company's portfolio of bonds has an average current yield of 8.94%. Net income for the Company's three month period ended March 31, 2001 was $334,398 on total revenues of $405,401. Interest income earned on our portfolio of loans was $291,568 We have elected to operate as a real estate investment trust, therefore we distribute to shareholders at least 95% of "Taxable Income," the dividends declared and paid to Shareholders for the quarter ended March 31, 2001 may included origination income even though it is not recognized in its entirety for the period under GAAP. However, as of March 31, 2001 we had not realized any origination income during the first three months of the fiscal year. 10 Our Board of Directors declared dividends of $.2125 for each share held of record on March 31, 2001. During our public offering, dividends are computed and paid to each Shareholder based on the number of days during a quarter that the Shareholder owned his or her shares. The dividend, which was paid April 30, 2001 represents a 8.50% annual rate of return on each share of common stock owned and purchased for $10 per share.. Shareholders' Equity rose $194,692 to $13,509,102 for the same reason. Our liabilities at the end of the three month period ended March 31, 2001 are primarily comprised of a our borrowings on our line of credit and dividends declared as of March 31, 2001 but not yet paid. Liquidity and Capital Resources Our revenue is derived principally from interest income, and secondarily, origination fees and renewal fees generated by mortgage loans we make. We also earn income through interest on funds that are invested pending their use in funding mortgage loans or distributions of dividends to its Shareholders, and on income generated on church bonds it may purchase and own. We generate revenue through (i) permitted temporary investments of the net proceeds from the sale of the shares, and (ii) implementation of its business plan of making mortgage loans to churches and other non-profit religious organizations. Our principal expenses are advisory fees, legal and accounting fees, communications costs with our Shareholders, and the expenses of our stock transfer agent, registrar and dividend reinvestment agent. Our future capital needs are expected to be met by (i) additional sale of its shares to the public (ii) prepayment, repayment at maturity and renewal of mortgage loans we make, and (iii) borrowed funds. We believe that the "rolling" effect of mortgage loans maturing, together with dividends reinvested under the Dividend Reinvestment Plan, will provide a supplemental source of capital to fund our business operations in future years. Nevertheless, we believe that it may be desirable, if not necessary, to sell additional shares of common stock, in order to enhance our capacity to make mortgage loans on a continuous basis. There can be no assurance we will be able to raise additional capital on terms acceptable for such purposes. We may borrow funds in an amount not to exceed 50% of our average invested assets. On July 22, 1999 we obtained a line of credit with Beacon Bank, Shorewood Minnesota. Interest is charged at 1% over the prime rate totaling 8.50% at March 31, 2001. The line of credit is collateralized by the mortgage secured bonds we own. We have borrowed $699,653 against our line of credit as of March 31, 2001. During the three month period ended March 31, 2001 we had paid $16,685 in interest expense. For the period ended March 31, 2001 cash from operating activities decreased to $191,343 from $279,585 from the comparative period ended March 31, 2000, primarily due to a increase in accounts receivable and reduction in accounts payable. For the period ended March 31, 2001 cash used for investing activities decreased to $77,132 from $898,223 from the comparative period ended March 31, 2000, primarily due to a reduction in investments in mortgage loans. For the period ended March 31, 2001 cash from financing activities decreased to $181,778 from $682,291 from the comparative period ended March 31, 2000, primarily due to reduced proceeds from the stock offering. 11 PART II OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders - ------------------------------------------------------------ No matters were submitted to a vote of security holders during the quarter ended March 31, 2001. Item 6. Exhibits and Reports on Form 8-K a) Exhibits filed with Form 10-QSB None b) Reports on Form 8-K None SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused the report to be signed on its behalf by the undersigned, thereunto duly authorized. Dated: May 15, 2001 AMERICAN CHURCH MORTGAGE COMPANY By: /s/ Philip J. Myers ------------------------------------------ Philip J. Myers Chief Executive Officer, Treasurer (and Chief Financial Officer) By: /s/ V. James Davis ----------------------------------------- V. James Davis Vice President and Secretary 12 file:f:\acmc\10q1st01.wpd 13