UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 2008
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number: 0-30507
BellaVista Capital, Inc.
(Exact name of registrant as specified in its charter)
Maryland 94-3324992
(State or other jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification No.)
15700 Winchester Blvd.
Los Gatos, CA 95030
(Address of principal offices) (zip code)
(408) 354-8424
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant has (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 [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a smaller reporting company. See the definitions of
"large accelerated filer," "accelerated filer" and "smaller reporting company"
in Rule 12b-2 of the Exchange Act.
Large accelerated filer Accelerated filer
Yes [ ] No [X] Yes [ ] No [X]
Non-accelerated filer (Do not
Check if a smaller reporting company) Smaller reporting company
Yes [ ] No [ ] Yes [X] No [ ]
Indicate by check mark whether the registrant is a shell company (as
defined in Rule 12b-2 of the Exchange Act).
Yes [ ] No [X]
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING
THE PRECEEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes [ ] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
The number of shares of the registrant's only class of common equity,
its common stock, outstanding as of February 23, 2009: 11,171,433
This Quarterly Report on Form 10-Q of BellaVista Capital, Inc. (the "Company")
contains forward-looking statements. All statements other than statements of
historical fact may be forward-looking statements. These include statements
regarding the Company's future financial results, operating results, business
strategies, projected costs and capital expenditures, investment portfolio,
competitive positions, and plans and objectives of management for future
operations. Forward-looking statements may be identified by the use of words
such as "may," "will," "should," "expect," "plan," anticipate," "believe,"
"estimate," "predict," "intend," "seek," "target" and "continue," or the
negative of these terms, and include the assumptions that underlie such
statements. The Company's actual results could differ materially from those
expressed or implied in these forward-looking statements as a result of various
risks and uncertainties, including those set forth in Part II, Item 1A - Risk
Factors. All forward-looking statements in this report are based on information
available to the Company as of the date hereof and the Company assumes no
obligation to update any such statements.
Table of Contents
Part I. Financial Information
Item 1. Financial Statements (unaudited) 2
Condensed Consolidated Balance Sheets as of December 31, 2008 and
September 30, 2008 (unaudited) 3
Condensed Consolidated Statements of Operations for the Three
Months Ended December 31, 2008 and 2007 (unaudited) 4
Condensed Consolidated Statements of Cash Flows for the Three
Months Ended December 31, 2008 and 2007 (unaudited) 5
Notes to the Condensed Consolidated Financial Statements
(unaudited) 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 13
Item 3. Quantitative and Qualitative Disclosures About Market Risk 13
Item 4T. Controls and Procedures 18
Part II. Other Information
Item 1. Legal Proceedings 18
Item 1A. Risk Factors 19
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 19
Item 3. Defaults Upon Senior Securities 19
Item 4. Submission of Matters to a Vote of Security Holders 19
Item 5. Other Information 20
Item 6. Exhibits 20
Signatures 21
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Attached are the following unaudited financial statements of BellaVista
Capital, Inc., formerly known as Primecore Mortgage Trust, Inc. (the "Company"):
(1) Condensed Consolidated Balance Sheets as of December 31, 2008
(unaudited), and September 30, 2008 (audited)
(2) Condensed Consolidated Statements of Operations for the Three Months
ended December 31, 2008 and 2007 (unaudited)
(3) Condensed Consolidated Statements of Cash Flows for the Three Months
ended December 31, 2008 and 2007 (unaudited)
(4) Notes to Condensed Consolidated Financial Statements (unaudited)
The financial statements referred to above should be read in conjunction
with the Company's audited financial statements for the period ended September
30, 2008 as filed with the Securities and Exchange Commission in our Annual
Report on Form 10-KSB filed January 23, 2009.
2
BELLAVISTA CAPITAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
December 31, 2008 September 30, 2008
------------------ -------------------
ASSETS:
Cash and cash equivalents $ 92,809 $ 636,346
Loans receivable secured by real estate 6,194,830 11,251,773
Joint venture investments in real estate developments 9,369,654 9,944,197
Investments in real estate developments 21,609,707 19,026,984
Investment in rental property, net of accumulated depreciation of $135,796
and $130,038 at December 31, 2008 and September 30, 2008, respectively 3,922,672 3,928,429
Fixed assets, net of accumulated depreciation of $14,388 and $12,831 at
December 31, 2008 and September 30, 2008, respectively 33,773 24,379
Other assets, net 471,841 670,836
------------------ -------------------
Total assets $ 41,695,286 $ 45,482,944
================== ===================
LIABILITIES AND SHAREHOLDERS' EQUITY:
Notes payable and line of credit $ 13,124,767 $ 12,453,057
Accounts payable and accrued expenses 775,810 1,062,168
Capital lease 4,117 4,985
------------------ -------------------
Total liabilities 13,904,694 13,520,210
SHAREHOLDERS' EQUITY:
Common stock: par value $0.01, 50,000,000 shares authorized at December 31,
2008 and September 30, 2008; 11,171,433 and 11,590,870 shares
outstanding, respectively 111,714 115,908
Additional paid-in capital 102,630,358 103,360,168
Accumulated deficit (74,951,480) (71,513,342)
------------------ -------------------
Total shareholders' equity 27,790,592 31,962,734
------------------ -------------------
Total liabilities and shareholders' equity $ 41,695,286 $ 45,482,944
================== ===================
3
BELLAVISTA CAPITAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Months Ended December 31,
(unaudited)
2008 2007
------------------ ----------------
REVENUES:
Revenues from loans receivable $ 133,120 $ 324,046
Equity in earnings from joint venture investments -- 291,871
Proceeds from sales of real estate 755,000 --
Rental revenue 194,051 --
Other -- 14,756
------------------ ----------------
Total revenues 1,082,171 630,673
Cost of sales of real estate (947,252) --
------------------ ----------------
Gross profit 134,919 630,673
EXPENSES:
Salaries expense 1,689 134,824
Facilities expense 1,232 23,089
Legal and accounting expense 30,433 45,327
Board of directors fees 87,347 86,799
Management fees 150,725 --
General and administrative expense 69,341 17,927
REO and non-recurring expenses 48,957 49,211
Rental expenses 129,311 --
Depreciation expense 7,315 3,120
Provision for impairment of investments in real estate 2,852,988 6,089,715
------------------ ----------------
Total expenses 3,379,338 6,450,012
------------------ ----------------
Net loss from operations (3,244,419) (5,819,339)
OTHER INCOME (EXPENSE)
Interest income 1,081 3,889
Interest expense (194,800) --
------------------ ----------------
Total other income (expense) (193,719) 3,889
------------------ ----------------
Net loss before tax (3,438,138) (5,815,450)
------------------ ----------------
Income tax expense -- (2,400)
------------------ ----------------
Net loss allocable to common stock $ (3,438,138) $ (5,817,850)
================== ================
Basic and diluted net income (loss) per share $ (0.31) $ (0.44)
================== ================
Basic and diluted weighted average shares outstanding 11,262,615 13,363,784
================== ================
4
BELLAVISTA CAPITAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months Ended December 31,
(unaudited)
2008 2007
-------------------- --------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (3,438,138) $ (5,817,850)
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation 7,315 3,120
Allowance for uncollectible interest 52,931 --
Provision for impairment 2,852,988 6,089,715
Decrease in other assets
146,932 239,797
(Decrease) increase in accounts payable and accrued expenses (287,216) 251,637
-------------------- --------------------
Net cash provided by (used in) operating activities (665,188) 766,419
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from repayments of investments in real estate 1,369,213 3,275,765
Investments in real estate (1,173,438) (3,936,297)
Purchase of fixed assets (10,951) --
-------------------- --------------------
Net cash provided by (used in) investing activities 184,824 (660,532)
CASH FLOWS FROM FINANCING ACTIVITIES:
Stock repurchases (734,015) (2,574,388)
Borrowings under notes payable and line of credit 1,500,000 2,328,000
Repayment of notes payable and line of credit (828,290) (1,475,000)
Payments under capital lease (868) (1,924)
-------------------- --------------------
Net cash used in financing activities (63,173) (1,723,312)
-------------------- --------------------
Net decrease in cash and cash equivalents (543,537) (1,617,425)
Beginning cash and cash equivalents 636,346 31,759,241
-------------------- --------------------
Ending cash and cash equivalents $ 92,809 $ 141,816
==================== ====================
Cash paid for interest
$ 131,093 $ 5,671
==================== ====================
5
BELLAVISTA CAPITAL, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. ORGANIZATION AND BUSINESS:
These statements are not a complete financial statement presentation. They
should be read in conjunction with our audited September 30, 2008 Financial
Statements filed on Form 10-KSB. The accompanying unaudited interim financial
statements reflect all adjustments that are, in the opinion of management,
necessary for a fair statement of results for the interim periods presented. The
results of operations for the three months ended December 31, 2008 are not
necessarily indicative of the results to be expected for any future period or
the full fiscal year.
Organization
BellaVista Capital, Inc., a Maryland corporation (the Company, our, we), was
formed on March 18, 1999 and commenced operations effective May 1, 1999. We have
been engaged in the business of investing in real estate development projects,
primarily in California. Our investments are structured as loans secured by real
estate, loans made to real estate development entities and joint venture
investments in real estate development entities. We are organized in a single
operating segment for purposes of making operating decisions and assessing
performance. BellaVista Capital, Inc. is also the 100% shareholder of Sands
Drive San Jose, Inc., and Frank Norris Condominiums Inc., both of which are
California corporations formed for the purpose of developing and selling
residential real estate. The Company holds a 100% interest in Cummings Park
Associates, LLC a California Limited Liability Company formed to develop and
sell a mixed use residential and retail project in East Palo Alto California.
The Company also holds a 100% interest in MSB Brighton LLC, currently operated
as a rental property. During the period ended December 31, 2008, the Company
became the sole owner of one of its investments through foreclosure.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Consolidation Policy
The consolidated financial statements include the accounts of BellaVista
Capital, Inc. and its wholly owned subsidiaries: Sands Drive San Jose, Inc., MSB
Brighton LLC, Frank Norris Condominiums Inc. and Cummings Park Associates, LLC.
All intercompany accounts and transactions have been eliminated in
consolidation. Investments acquired or created are evaluated based on Financial
Accounting Standards Board ("FASB") Interpretation ("FIN") 46R, "Consolidation
of Variable Interest Entities," which requires the consolidation of VIEs in
which we are considered to be the primary beneficiary. If the investment is
determined not to be within the scope of FIN 46R, then the investments are
evaluated for consolidation under the American Institute of Certified Public
Accountants' Statement of Position 78-9, "Accounting for Investments in Real
Estate Ventures," as amended by Emerging Issues Task Force Issue No. 04-5,
"Determining Whether a General Partner, or the General Partners as a Group,
Controls a Limited Partnership or Similar Entity When the Limited Partners Have
Certain Rights.
Use of Estimates
These financial statements have been prepared in accordance with accounting
principles generally accepted in the United States of America. The preparation
of financial statements in conformity with accounting principles generally
accepted in the United States of America requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Valuations of investments in real estate include management's
best estimates of the amounts expected to be realized on the sale of its
investments. The estimates are based on an analysis of the properties, including
certain inherent assumptions and estimates that are involved in preparing such
valuations. The amounts the Company will ultimately realize could differ
materially in the near term from these estimates.
6
BELLAVISTA CAPITAL, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Loans Receivable Secured By Real Estate
We have originated loans secured by real estate. These loans are secured by
deeds of trust on real property, pay interest on a monthly basis and are
typically additionally collateralized by personal guarantees from the principals
of our borrowers. We recognize interest income on these loans during the period
in which the interest is earned and recognize income on any loan fees charged
under the effective interest method.
We establish and maintain credit reserves for loans receivable secured by real
estate based on estimates of credit losses inherent in these loans as of the
balance sheet date. To calculate the credit reserve, we assess inherent losses
by determining loss factors (defaults, the timing of defaults, and loss
severities upon defaults) that can be specifically applied to each loan. We
follow the guidelines of Staff Accounting Bulletin No. 102, Selected Loan Loss
Allowance Methodology and Documentation Issues (SAB 102), and Financial
Accounting Statement No. 5, Accounting for Contingencies (FAS 5), in setting
credit reserves for our residential and commercial loans. We follow the
guidelines of Financial Accounting Statement No. 114, Accounting by Creditors
for Impairment of a Loan (FAS 114), in determining impairment on commercial real
estate loans.
Joint Venture Investments in Real Estate Developments
Our joint venture investments in real estate developments are comprised of
loans, known as Acquire, Develop, and Construct loans (ADC Loans), which are
secured by real estate and have many characteristics of joint venture
investments and investments in real estate joint ventures.
ADC Loans
We have originated secured loans to acquire, develop and construct residential
real estate. These loans contain many of the following characteristics which are
identified with ADC loans:
1. The lender has agreed to provide all or substantially all necessary funds
to acquire, develop or construct the property. The borrower has title to
but little or no cash equity in the project;
2. The lender funds substantially all the interest and fees during the term of
the loan by adding them to the loan balance;
3. Typically, the lender's only security is the project itself. The lender has
no recourse to other assets of the borrower, and the borrower does not
guarantee the debt;
4. In order for the lender to recover its investment in the project, the
property must be sold to independent third parties or the borrower must
obtain refinancing from another source.
Because our ADC loans contain many of the characteristics of investments in real
estate, they are classified for financial reporting purposes as joint venture
investments in real estate developments (Note 4). ADC loans with no equity
participation interest are stated at the lower of cost or fair value and
accounted for as an investment in real estate. Revenue from interest and points
is recognized as cash is received from the sale or refinancing of such
properties. ADC loans that include an equity participation interest are
accounted for in the same manner as joint venture investments in real estate
developments. ADC loans include amounts funded under the loan agreements and
capitalized interest expense, where applicable. If our ADC loans qualified as
borrowings under US GAAP, interest and points would be recognized in income as
earned instead of at the time of sale of the underlying property.
Joint Venture Investments in Real Estate
We provide equity capital to real estate developers necessary to acquire,
develop and construct real estate developments. Such investments are structured
as membership interests in the development entity. We account for such
investments using the equity method of accounting.
Management conducts a review for impairment on an investment-by-investment basis
whenever events or changes in circumstances indicate that the carrying amount of
an investment may not be recoverable, or at least quarterly. Impairment is
recognized when estimated expected future cash flows (undiscounted and without
7
BELLAVISTA CAPITAL, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
interest charges), typically from the sale of a completed property, are less
than the carrying amount of the investment, which does not include accrued
interest and points. The estimation of expected future net cash flows is
inherently uncertain and relies to a considerable extent on assumptions
regarding current and future economic and market conditions. If, in future
periods, there are changes in the estimates or assumptions incorporated into the
impairment review analysis, the changes could result in an adjustment to the
carrying amount of the investments. To the extent impairment has occurred, the
excess of the carrying amount of the investment over its estimated fair value,
less estimated selling costs, is charged to operations.
Investments in Real Estate Developments
Investments in Real Estate Developments represent development projects that the
Company has obtained through foreclosure of its mortgage loans or controls by
virtue of its operating agreements with development entities, and relate to real
properties for which the Company has a controlling ownership interest. We
consolidate the assets and liabilities of these Investments in Real Estate
Developments in our financial statements. The Company's basis in the projects is
the carrying amount of the project at the time of loan foreclosure. Management
conducts a review for impairment of these assets on an investment-by-investment
basis whenever events or changes in circumstances indicate that the carrying
amount may not be recoverable, but not less frequently than quarterly.
Impairment is recognized when estimated expected future cash flows (undiscounted
and without interest charges), typically from the sale of a completed property,
are less than the carrying amount of the investment, which does not include
accrued interest and points. The estimation of expected future net cash flows is
inherently uncertain and relies to a considerable extent on assumptions
regarding current and future economic and market conditions. If, in future
periods, there are changes in the estimates or assumptions incorporated into the
impairment review analysis, the changes could result in an adjustment to the
carrying amount of the investments. To the extent impairment has occurred, the
excess of the carrying amount of the investment over its estimated fair value,
less estimated selling costs, is charged to operations.
Cash and Cash Equivalents
Cash and cash equivalents include cash held in financial institutions and other
highly liquid short-term investments with original maturities of three months or
less. As of December 31, 2008 the Company's cash was fully insured by the
Federal Deposit Insurance Corporation ("FDIC"). FDIC limits have been waived
indefinitely.
Fixed Assets
Fixed assets, which include equipment and furniture, are carried at cost less
accumulated depreciation. Depreciation and amortization is recorded using the
straight-line method over the estimated useful life of the asset Furniture and
equipment have useful lives ranging from 3 to 7 years. Buildings have useful
life of 30 to 40 years.
Income Taxes
Our taxable income differs from income measured in accordance with generally
accepted accounting principles in the United States of America due to timing
differences in the recognition of income from our ADC loans and REO properties.
For tax purposes, interest and points are accrued as income according to the
terms of our loan contracts, but not recognized under generally accepted
accounting principles in the United States of America until the contract has
been paid through sale or refinancing of the secured property.
The Company uses the asset and liability method whereby deferred tax assets and
liability account balances are determined based on differences between the
financial reporting and tax bases of assets and liabilities and are measured
using enacted tax rates and laws that will be in effect when the differences are
expected to reverse. The Company provides a valuation allowance, if necessary,
to reduce deferred tax assets to their estimated realizable value.
8
BELLAVISTA CAPITAL, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
3. LOANS RECEIVABLE SECURED BY REAL ESTATE:
As of December 31, 2008, loans receivable secured by real estate summarized by
location consisted of the following:
Amount Recognized Carrying
Description Invested Impairments Amount In Default
------------------- ------------------ ------------------- ------------------
SF Bay Area $ 5,345,674 $ 165,000 $ 5,180,673 $ 1,862,674
California Central Valley 229,057 -- 229,057 229,057
Southern California 185,100 -- 185,100 --
Other States 600,000 -- 600,000 --
------------------- ------------------ ------------------- ------------------
Total $ 6,359,831 $ 165,000 $ 6,194,830 $ 2,091,731
=================== ================== =================== ==================
As of September 30, 2008, loans receivable secured by real estate summarized by
location consisted of the following:
Amount Recognized Carrying
Description Invested Impairments Amount In Default
------------------- ------------------ ------------------- ------------------
SF Bay Area $ 10,421,673 $ 165,000 $ 10,256,673 $ 6,858,673
California Central Valley 210,000 -- 210,000 210,000
Southern California 185,100 -- 185,100 --
Other States 600,000 -- 600,000 --
------------------- ------------------ ------------------- ------------------
Total $ 11,416,773 $ 165,000 $ 11,251,773 $ 7,068,673
=================== ================== =================== ==================
Loans Receivable Secured by Real Estate consist of loans to real estate
developers which are secured by deeds of trust on real property, pay interest
monthly and generally have repayment guarantees from the principals of the
borrowing entity. As of December 31, $4,038,984 of these loans were secured by
first trust deeds and $2,320,847 were secured by second trust deeds.
Additionally, at December 31, 2008 six loans totaling $2,091,731 were in default
under the terms of our loans. As of December 31, 2008, we had recorded an
impairment on one of our loans receivable in the amount of $165,000. Included on
the Balance Sheet in Other assets is interest receivable of $355,386 and
$309,559 less an allowance for uncollectible interest in the amount of $242,780
and $189,849 as of December 31, 2008 and September 30, 2008, respectively.
4. JOINT VENTURE INVESTMENTS IN REAL ESTATE DEVELOPMENTS:
As of December 31, 2008, joint venture investments in real estate developments
summarized by location consisted of the following:
Remaining
Amount Carrying Funding
Description Invested Impairments Amount Obligation
------------------- ------------------ ------------------- ------------------
SF Bay Area $ 11,300,566 $ 1,964,705 $ 9,369,654 $ 44,934
Southern California 7,463,683 7,484,906 -- --
------------------- ------------------ ------------------- ------------------
Total $ 18,764,249 $ 9,449,611 $ 9,369,654 $ 44,934
=================== ================== =================== ==================
As of September 30, 2008, joint venture investments in real estate developments
summarized by location consisted of the following:
Remaining
Amount Carrying Funding
Description Invested Impairments Amount Obligation
------------------- ------------------ ------------------- ------------------
SF Bay Area $ 10,909,306 $ 1,964,705 $ 9,117,125 $ 297,461
Southern California 7,143,683 6,337,835 827,072 320,000
------------------- ------------------ ------------------- ------------------
Total $ 18,052,989 $ 8,302,540 $ 9,944,197 $ 617,461
=================== ================== =================== ==================
9
BELLAVISTA CAPITAL, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
4. JOINT VENTURE INVESTMENTS IN REAL ESTATE DEVELOPMENTS (continued):
Joint Venture Investments in real estate developments consist of ADC loans and
joint investments with real estate developers. ADC Loans, which are loan
arrangements that are typically secured by real property, provide for the
payment of interest from an interest reserve established from loan funds and may
also provide for the payment of an exit fee as a percentage of sales from each
unit in the development or a share of project profits. Joint Venture investments
are equity investments in operating entities formed for the purpose of
developing real estate. Our investment typically earns a preferred return
calculated based on our investment amount at a specific rate during the term of
the investment and a share of the project profits. As of December 31, 2008 and
September 30, 2008, we have recognized impairments totaling approximately $10.2
and $8.3 million, respectively on three of our joint venture investments in real
estate developments.
5. INVESTMENTS IN REAL ESTATE DEVELOPMENTS:
Investments in Real Estate Developments include real estate development projects
we own, either directly or through a subsidiary company we own or control. The
following table summarizes our Investments in Real Estate Developments by
location as of December 31, 2008:
Amount Invested Recognized Carrying Costs to
Description (net of payments) Impairment Amount Complete
------------------- ------------------ ------------------- ------------------
SF Bay Area $ 26,455,888 $ 4,846,181 $ 21,609,707 $ 460,646
------------------- ------------------ ------------------- ------------------
Total $ 26,455,888 $ 4,846,181 $ 21,609,707 $ 460,646
=================== ================== =================== ==================
The following table summarizes our Investments in Real Estate Developments by
location as of September 30, 2008:
Amount Invested Recognized Carrying Costs to
Description (net of payments) Impairment Amount Complete
------------------- ------------------ ------------------- ------------------
SF Bay Area $ 19,385,494 $ 3,748,223 $ 19,026,984 $ 331,305
------------------- ------------------ ------------------- ------------------
Total $ 19,385,494 $ 3,748,223 $ 19,026,984 $ 331,305
=================== ================== =================== ==================
6. INVESTMENT IN RENTAL PROPERTY:
The rental property is summarized as follows at December 31, 2008 and September
30, 2008:
December 31, 2008 September 30, 2008
------------------- -------------------
Land $ 1,076,589 $ 1,076,589
Building 2,969,348 2,969,348
Furniture and equipment 12,531 12,530
------------------- -------------------
Total rental property 4,058,468 4,058,467
Accumulated depreciation (135,796) (130,038)
------------------- -------------------
Rental property, net $ 3,922,672 $ 3,928,429
=================== ===================
Depreciation expense was $5,757 for the three months ended December 31, 2008.
10
BELLAVISTA CAPITAL, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
7. FIXED ASSETS:
Fixed Assets at December 31, 2008 and September 30, 2008 consisted of the
following:
December 31, 2008 September 30, 2008
------------------- -------------------
Computer equipment $ 18,756 $ 18,756
Furniture 29,405 18,454
------------------- -------------------
Total office equipment 48,161 37,210
Accumulated depreciation (14,388) (12,831)
------------------- -------------------
Fixed assets, net $ 33,773 $ 24,379
=================== ===================
Depreciation expense was $1,557 for the three months ended December 31, 2008
8. NOTES PAYABLE AND LINE OF CREDIT:
Notes payable and line of credit as of December 31, 2008 and September 30, 2008
consisted of the following:
December 31, 2008 September 30, 2008
------------------- -------------------
Secured line of credit $ 2,600,000 $ 2,600,000
Secured loan 6,503,038 7,331,328
Secured loan 2,521,729 2,521,729
Secured loan 1,500,000 --
------------------- -------------------
Total $ 13,124,767 $ 12,453,057
=================== ===================
The line of credit of $2,600,000 represents the outstanding balance as of
December 31, 2008 and September 30, 2008 on a $3.0 million revolving line of
credit secured by a deed of trust on one of our investments. It bears interest
at Prime plus 2% (5.25% and 5.50% at December 31, 2008 and September 30, 2008,
respectively). The line matured on June 5, 2008, and was extended to April 18,
2009.
The secured loan totaling $6,503,038 and $7,331,328 at December 31 and September
30, 2008, respectively remains outstanding on a $14.9 million construction loan
originated for the purpose of financing the construction of a residential and
retail mixed use project in East Palo Alto, California. The loan is owed by
Cummings Park Associates, LLC and is secured by the real property. The loan
bears interest at Prime plus 1%, (5.0% at December 31, 2008) and matures on
March 15, 2009. Interest-only payments are due monthly on the outstanding
balance of the note. Principal payments will be made from the proceeds when
units are sold.
The secured loan of $2,521,729 is the outstanding balance as of December 31,
2008 and September 30, 2008 on an assumed loan for the Frank Norris Condominium
Inc. property that is now fully owned by the Company and is secured by the
property. The loan bears interest at Prime plus 1% with a floor of 6.0% (6% at
December 31, 2008) and matures on April 15, 2009. Interest-only payments are due
monthly on the outstanding balance of the note.
The secured loan of $1,500,000 is the outstanding balance as of December 31,
2008 on a loan secured by the MSB Brighton rental property. The loan bears
interest at 11.5%. Interest-only payments are due monthly on the outstanding
balance of the note. The note matures on February 1, 2012.
9. SHAREHOLDERS' EQUITY:
There is currently no public trading market for our stock. We are authorized to
issue up to 50,000,000 shares of Common Stock. As of December 31, 2008 we have
repurchased 1,564,097 shares in connection with legal settlements and 6,747,822
shares under tender offers at various prices. At December 31, 2008 we had
11,171,433 shares of Common Stock outstanding.
11
BELLAVISTA CAPITAL, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
9. SHAREHOLDERS' EQUITY (continued):
Since June 2005, a group of entities associated with Mackenzie Patterson Fuller,
Inc. (collectively "MPF") have acquired an aggregate of 1,390,046 shares as of
December 31, 2008, through a series of unsolicited tender offers.
In August 2008, MPF commenced another tender offer to purchase up to 400,000
shares at a price of $1.00 per share. The Company responded with its own tender
offer to repurchase up to 750,000 shares at a price of $1.75 per share and
completed the repurchase of 419,437 shares at $1.75 per share in October, 2008.
The Company has not declared or paid any dividends on its capital stock during
the period from January 1, 2005 through the date of this report.
10. COMMITMENTS AND CONTINGENCIES:
Litigation
As of December 31, 2008, the Company was involved in the following litigation in
which claims for damages would be material if the plaintiff prevailed and there
is at least a reasonable possibility that a loss may have occurred:
Richard Aster v BellaVista Capital, Inc. et al. A lawsuit alleging
construction defects in the installation of windows and roofing related
to a single family home that was purchased by the plaintiff from the
Company after the Company acquired the property through foreclosure.
This lawsuit names several defendants, including the Company and the
original developer. In addition, a lawsuit has been filed by the
original developer against the Company for indemnification and defense.
The Company believes it has strong and viable defenses and plans to
vigorously defend these actions.
General Uninsured Losses
We require that our borrowers carry comprehensive liability, fire, flood,
extended coverage, and rental loss insurance with policy specifications, limits,
and deductibles customarily carried for similar properties. Additionally, we
carry insurance on our direct investments in real estate development. There are,
however, certain types of extraordinary losses that may be either uninsurable or
not economically insurable. Further, all of our investments are located in areas
that are subject to earthquake activity, and we generally do not require our
borrowers to maintain earthquake insurance. Should an investment sustain damage
as a result of an earthquake, we may incur losses due to insurance deductibles,
co-payments on insured losses, or uninsured losses. Should an uninsured loss
occur, we could lose our investment in, and anticipated profits and cash flows
from an investment.
11. SUBSEQUENT EVENTS:
The Board of Directors authorized the Company's management to negotiate a credit
facility equal to $1.5 million secured by our property located on Pulgas Ave.,
East Palo Alto, CA, which the Company took title to on December 31, 2008 through
foreclosure. The interest rate on the credit facility is 11.5% and matures
February 12, 2012.
12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND
RESULTS OF OPERATIONS.
General
Our material financial transactions have been purchasing and holding a portfolio
of construction mortgage loans, and the construction and sale of real estate
acquired through foreclosure or deed in lieu of foreclosure. Statements
contained in this Item 2, "Management's Discussion and Analysis of Financial
Condition and Results of Operations," and elsewhere in this Form 10-Q, which are
not historical facts, may be forward-looking statements. Forward-looking
statements include statements which are predictive in nature, which depend upon
or refer to future events or conditions, which include words such as "expects,"
"anticipates," "intends," "plans," "believes," "estimates," or similar
expressions. In addition, any statements concerning future financial performance
(including future revenues, earnings or growth rates), ongoing business
strategies or prospects, and possible future actions, which may be provided by
management, are also forward-looking statements. These statements are not
guaranties of future performance. Forward-looking statements are based on
current expectations and projections about future events and are subject to
risks and uncertainties that could cause actual results to differ materially
from those projected. These risks include those described under the heading
"Risk Factors" included in Part II, Item 1A. Investors are cautioned
not to attribute undue certainty to these forward-looking statements, which
speak only as of the date of this Form 10-Q. We undertake no obligation to
publicly release any revisions to these forward-looking statements, to reflect
events or circumstances after the date of this Form 10-Q, or to reflect the
occurrence of unanticipated events, other than as required by law.
Overview
BellaVista Capital was incorporated in March 1999 as Primecore Mortgage Trust,
Inc. Since incorporation and through December 2000, Primecore engaged in the
business of providing loans for the development of primarily high-end single
family residential real estate. During 1999 and 2000 Primecore raised the
capital to fund these loans from the sale of shares of Preferred Stock. This
capital was invested primarily in high priced San Francisco Bay Area residential
real estate at a time when prices were increasing at a rapid pace. By the end of
2000, Primecore had loan commitments of $436 million on 117 loans with over $216
million funded.
After 2000, the market for high-end real estate in the San Francisco Bay Area
began to deteriorate; Primecore began to experience borrower defaults and
through 2003 took title to 48 properties by way of foreclosure or deed in lieu
of foreclosure. Primecore also recognized significant impairments in its
portfolio. The impairment of the investment portfolio resulted in substantial
operating losses. The Company realized that these net operating losses could be
carried forward and used to reduce future taxable income. In prior years, the
company used its REIT status, and the payment of dividends, to eliminate
corporate level taxation. However, the REIT rules restricted the types of loans
the Company could make. In particular, the Company was prohibited from making
loans with equity participations. With the ability to carry forward prior years'
net operating losses to offset future taxable income, the Company was free to
terminate its REIT status, which it did effective January 1, 2004, and was no
longer restricted in the types of investments it could make.
In April 2004 Primecore changed its name to BellaVista Capital in order to
reflect its new business focus. During 2004 new management focused on completing
and liquidating the existing portfolio of assets, internalizing operations,
resolving outstanding legal issues and developing a pipeline of new investment
opportunities. In addition to the completion and sale of our non-performing
investments, management completed the transition to internal management and
significantly reduced continuing operating expenses.
The current real estate market is best characterized by significant erosion in
real estate values and significant decrease in rate of inventory absorption;
thus the Company has currently discontinued investments in subordinated debt and
equity investments. Any investments made during this very difficult economic
period, which we believe is expected to last through 2010, will range between
$0.5 million and $2.0 million and will typically be secured by first deeds of
trust requiring monthly interest payments.
13
As a result of the current difficult market conditions, the Company has taken
control of certain nonperforming loans and equity partnership investments.
Control was obtained by settlement with the borrower or by assuming the role of
managing partner. These properties are now categorized as Direct Investments in
real estate developments. For each of these properties, the Company has made a
determination on how to maximize value based on the local market conditions,
potential for future appreciation, and the properties' operating and debt
structure. In a number of cases, these Investments in Real Estate are being
operated as either a rental or a hybrid of units used for rental and units
available for sale. In a particular case, it was deemed appropriate to (1)
auction the residential units for one of the properties due to its existing debt
structure and to (2) lease and hold the commercial space.
RESULTS OF OPERATIONS
We reported revenues from Loans Receivable Secured by Real Estate totaling
$133,120 during the three months ended December 31, 2008 compared with $324,046
during the three months ended December 31, 2007. The decrease in revenues was
due to (1) a decrease in the average amount invested in these loans during the
comparable periods; and (2) a decline in our average return due to nonperforming
loans in our portfolio.
We reported zero revenues from our Joint Venture Investments in Real Estate
Developments during the three months ended December 31, 2008 compared with $0.3
million during the three months ended December 31, 2007. Our revenues are
derived from repayment of loans and equity participations. During the three
months ended December 31, 2008 we reported revenues totaling $755,000 from our
Investments in Real Estate Developments compared with zero revenues during the
three months ended December 31, 2007. This increase is due to sales of units
that were under development in 2007.
During the three months ended December 31, 2008, we reported revenues totaling
$194,051 from our investment in rental property compared with zero revenues
during the three months ended December 31, 2007. This was due to the conversion
of MSB Brighton, one of the Company's Investments in Real Estate Development to
a rental property in 2008.
Expenses
We group our operating expenses in three categories: recurring expenses,
nonrecurring expenses, and impairments. Recurring expenses are associated with
the ongoing operations of the Company. Nonrecurring expenses are legal costs and
carrying costs of real estate owned (REO) included with investments in real
estate. During the three months ended December 31, 2008 our recurring operating
expenses were approximately $348,082 compared with $311,086 for the three months
ended December 2007. The increase is principally due to higher management fees
and general and administrative expenses for the three months ended December 31,
2008 compared with 2007. As a result of the continuing downturn in the real
estate market and significant uncertainties associated with future investments,
we have discontinued funding any new equity investments and significantly
curtailed funding new trust deed investments while we wait for the market to
stabilize. In order to streamline the operations of the company and its expense
structures to the eroding current market conditions and declining property
values, the Board of Directors determined that the best course of action to
preserve shareholder's value was to outsource a significant portion of the
Company's day-to-day administrative and asset management functions. The
Executive and Financial Officer responsibilities have been assumed by two of the
existing board members, with a third member also overseeing the operational
aspects of the business on an as-needed basis. In addition, the day-to-day
administrative and asset management functions have been outsourced to a
professional asset manager, Cupertino Capital.
During the three months ended December 31, 2008 our nonrecurring operating
expenses were $48,957 compared with $49,211 during the three months ended
December 31, 2007.
During the three months ended December 31, 2008 our rental expenses were
approximately $129,311 compared with zero during the three months ended December
31, 2007. The increase is due to converting the investment in MSB Brighton to a
rental property from a property held for sale. For the three months ended
December 31, 2007, Brighton was under construction and was reported as a joint
venture investment.
14
We recorded impairment charges totaling $2.9 million during the three months
ended December 31, 2008 compared with $6.1 million during the three months ended
December 31, 2007. The impairments reported during the three months ended
December 31, 2007 was related to certain investments in which their values had
declined due to declining real estate prices and longer than normal estimated
marketing periods. The recorded impairments during the three months ended
December 31, 2008 related to certain investments that declined in value due to
the prevailing conditions for the real estate market coupled with slower sales
rates on these investments than projected. We have impaired our investments
based on our estimate of the decrease in value resulting from the increase in
costs associated with holding or renting the properties for an extended period
of time in this highly uncertain real estate market.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity means the need for, access to and uses of cash. Our principal source
of liquidity is the repayment of our real estate investments. Our principal
demands for liquidity are funds that are required to satisfy obligations under
existing loan commitments, costs of operating and holding investments in real
estate development for future sales, and operating expenses.
Sources of Cash
As of December 31, 2008 our primary source of liquidity were sales of our
completed investments in real estate, $1.5 million in line of credit secured by
property on Pulgas Ave., in East Palo Alto, CA, and the cash we held in the
bank. We do not currently have any plan to sell equity or issue debt securities.
However, we do have the ability to borrow money from various funding sources
using our real estate investments as collateral if we determine that we need
additional liquidity.
We typically receive repayment on our investments when the development project
has been completed and sold or refinanced to third parties. Accordingly, our
repayments are a function of our developers' ability to complete and sell the
development properties in which we have invested. During the three months ended
December 31, 2008 we received repayments, including income, totaling $1.4
million compared with $3.3 million during the three months ended December 31,
2007. The following table summarizes our liquidity expectations based on current
information regarding project completion and sales absorption assumptions for
the investments we held at December 31, 2008. The expected proceeds in the table
are higher than our net realizable value estimates because they include our
estimated costs to complete and are presented net of $13,124,767 in secured
debt.
Expected Proceeds
------------------------
Scheduled investment completion:
Nine months ended 09/30/09 $ 5,097,548
Year ended 09/30/10 5,660,257
Year ended 09/30/11 7,185,473
Year ended 09/30/12 10,485,600
Year ended 09/30/13 3,043,500
------------------------
Total $ 31,472,378
========================
It is possible that our repayments may not be sufficient to timely meet our
commitments and we may be forced to sell assets or seek financing at terms that
may not be favorable to us. This would have a negative impact on the estimated
net realizable value of our assets.
Uses of Cash
The following table sets forth the projected timing and amount of our
obligations through September 30, 2010, without taking into account new
investments that may be made during future periods:
15
Nine months ended Year ended
September 30, September 30,
Obligation Total 2009 2010
------------------ ------------------ ------------------
Investment fundings $ 505,580 $ 505,580 $ --
------------------ ------------------ ------------------
Total $ 505,580 $ 505,580 $ --
================== ================== ==================
Investment fundings are the largest use of our cash. During the three months
ended December 31, 2008 we invested $1.2 million in new and continuing
development projects compared with $3.9 million during the three months ended
December 31, 2007. In addition, during the three months ended December 31, 2008
and December 31, 2007, we used cash in the aggregate amount of $734,015 and
$2,574,388, respectively to repurchase BellaVista common stock.
At December 31, 2008, we estimated the costs to complete our investments in real
estate developments plus the remaining funding obligation on our joint venture
investments in real estate developments to be approximately $505,580. The exact
timing of the investment fundings is dependent on several factors including
weather, governmental regulation and developer related issues, so the timing of
investment fundings in the above table is an estimate based on information
available to us at this time.
Stock Repurchases
In the past, we have provided liquidity to our stockholders through the
repurchase of outstanding shares. Because our stock does not trade in any
secondary market, no market value exists for our stock and another method must
be used to determine the repurchase price. The Board of Directors has used the
net realizable value of the Company's assets as well as an assessment of the
risk profile for each investment to guide in the determination of the repurchase
price for planned repurchases as well as Company repurchases in response to
unsolicited tender offers.
Stockholder Liquidity and Realizable Value of Investments
The realizable value of our assets represents our current estimate of the amount
of proceeds we expect to receive once our investments are completed and ready
for sale. The estimate relies on a number of assumptions including the expected
value of the investment once completed, less applicable selling costs, the
remaining costs and the length of time required to complete the project. Many
factors outside of the Company's control can cause changes in these estimates
and produce significantly different results. Furthermore, as noted above, there
is no organized public market for the Company's shares, so the Company's
calculation of the estimated realizable value of its assets per outstanding
share should not be viewed as an estimate of any market value per share, and
there can be no assurance as to the amount or timing of any investment returns
on the shares.
During the period from June 2005 to January 2009, the Company has not used its
funds to pay dividends or distributions or, except in certain extraordinary
circumstances, to redeem shares. Such extraordinary circumstances have included
Company tender offers in response to unsolicited third party tender offers which
the Board deemed inadequately priced and opportunistic. The Board will determine
the timing and terms of any future share redemptions based on available
liquidity, net realizable value, and assessment of the risk profile for each
investment.
The information presented below reconciles the differences between the carrying
value of our investments based on US GAAP and the estimated realizable value of
our investments.
December 31, 2008 September 30, 2008
------------------- -------------------
Loans receivable secured by real estate $ 6,194,831 $ 11,251,773
Joint Venture investments in real estate developments 9,369,653 9,944,197
Investments in real estate developments 21,609,707 19,026,984
Investment in rental property 3,922,672 3,928,429
------------------- -------------------
16
------------------- -------------------
Total investments in real estate per US GAAP 41,096,863 44,151,383
Collectible interest and preferred return not reportable per US GAAP 2,875,226 4,023,463
------------------- -------------------
Estimated realizable value of investments in real estate $ 43,972,089 $ 48,174,846
=================== ===================
Net Realizable Value of Assets per Share
The following calculation determines the estimated net realizable value per
share of stock at December 31, 2008 and September 30, 2008:
December 31, 2008 September 30, 2008
------------------- -------------------
Cash $ 92,809 $ 636,346
Other assets 319,824 682,411
Estimated realizable value of investments in real estate 43,972,089 48,174,846
------------------- -------------------
Total realizable assets 44,384,722 49,493,603
Accounts and notes payable (13,904,693) (13,520,210)
------------------- -------------------
Estimated net realizable assets 30,480,029 35,973,393
Shares outstanding 11,171,433 11,590,870
------------------- -------------------
Estimated net realizable assets per share $ 2.73 $ 3.10
=================== ===================
Our estimated net realizable assets per share was $2.73 at December 31, 2008, a
decrease of $0.37 per share from the $3.10 we estimated at September 30, 2008.
The decrease in the estimated realizable value of several of our investments was
the result of the continuing significant declines in real estate values and the
substantial reduction in inventory absorption rates.
Critical Accounting Policies and Estimates
Management's Discussion and Analysis of Financial Condition and Results of
Operation covers our financial statements, which have been prepared in
accordance with accounting principles generally accepted in the United States.
The preparation of these financial statements requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and expenses
during the reporting period. On an on-going basis, management evaluates its
estimates and judgments, including those related to the valuation of our assets
and liabilities. Management bases its estimates and judgments on historical
experience and on various other factors that are believed to be reasonable under
the circumstances, the results of which form the basis for making judgments
about the carrying values of assets and liabilities that are not readily
apparent from other sources. Actual results may differ from these estimates
under different assumptions or conditions. Management believes the following
critical accounting policies, among others, affect the more significant
judgments and estimates used in the preparation of its consolidated financial
statements.
Valuation and Realizability of Investments. All of our Acquire, Develop, and
Construct loans (ADC loans) are classified for financial reporting purposes as
joint venture investments in real estate developments. We have taken ownership
on some ADC loans that are classified as investments in real estate
developments. Such investments are stated at the lower of cost or fair value.
Management conducts a review for impairment on an investment-by-investment basis
whenever events or changes in circumstances indicate that the carrying amount of
an investment may not be recoverable. Impairment is recognized when estimated
expected future cash flows (undiscounted and without interest charges),
typically from the sale of a completed property, are less than the carrying
amount of the investment, plus estimated costs to complete. The estimation of
expected future net cash flows is inherently uncertain and relies to a
considerable extent on assumptions regarding current and future economics and
market conditions. If, in future periods, there are changes in the estimates or
assumptions incorporated into the impairment review analysis, the changes could
result in an adjustment to the carrying amount of the investments. To the extent
that there is impairment, the excess of the carrying amount of the investment
over its estimated fair value, less estimated selling costs, will be charged to
income. We believe that all of our investments are carried at the lower of cost
or fair value; however conditions may change and cause our ADC loans and
investments in real estate to decline in value in a future period.
17
Loan Accounting. We have applied the guidance of AICPA Practice Bulletin 1,
Purpose and Scope of AcSEC Practice Bulletins and Procedures for Their Issuance,
Exhibit I in accounting for our investment loans as real estate acquisition,
development, or construction (ADC) arrangements. In accordance with the ADC
accounting rules, we treat these loans as if they were real estate joint
ventures, and thus we do not accrue income for interest and points on our ADC
loans until the sale or refinancing of a property. Revenue from interest and
points from these ADC loans is recognized as cash is received from the sale or
refinancing of such properties. ADC loans are classified as joint venture
investments in real estate developments and include amounts funded under the
loan agreements. If our ADC loans qualified as loans under GAAP, interest and
points would be recognized as income in periods prior to the sale of the
underlying property.
In addition to ADC loans, we have made direct equity investments in real estate
joint ventures. These joint venture investments are accounted for in the same
manner as our ADC loans and are classified as joint venture investments in real
estate developments.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not applicable.
ITEM 4T. CONTROLS AND PROCEDURES.
Evaluation of Effectiveness of Disclosure Controls and Procedures
The Company's management, with the participation of the Company's Chief
Executive Officer and the Chief Financial Officer, has evaluated the
effectiveness of the Company's disclosure controls and procedures (as defined in
Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as
amended) as of the end of the fiscal period covered by this Quarterly Report on
Form 10-Q. The Chief Executive Officer and Chief Financial Officer have
concluded that our disclosure controls and procedures were not fully effective
as of December 31, 2008 due to the significant deficiency disclosed in item 8A
of the Company's most recent Annual Report on form 10-KSB for the twelve months
ended September 30, 2008.
Internal Control Over Financial Reporting
There have been no changes in the Company's internal controls over financial
reporting during the last quarterly period covered by this Quarterly Report on
Form 10-Q that have materially affected, or are reasonably likely to materially
affect, the Company's internal control over financial reporting.
Limitations on the Effectiveness of Controls
A control system, no matter how well conceived and operated, can provide only
reasonable, not absolute, assurance that the objectives of the control system
are met. Because of the inherent limitations in all control systems, no
evaluation of controls can provide absolute assurance that all control issues
and instances of fraud, if any, within a company have been detected. Our
disclosure controls and procedures are designed to provide reasonable assurance
of achieving its objectives
18
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
Refer to the discussion under the heading "Litigation" in Note 10 of the Notes
to the Condensed Consolidated Financial Statements (unaudited), included in Part
I, Item 1 above, for a description of certain Legal Proceedings in which the
Company is involved.
ITEM 1A. RISK FACTORS.
General Economic Conditions in Lending Areas. Our business plan seeks to
diversify our investments throughout California and other states in the western
United States of America. Approximately 83.09% of our investments are currently
located in the San Francisco Bay Area, 15.9% are in Southern California, .47% is
in California's Central Valley, and 1.24% are located in other states of the
United States of America. The potential success of real estate investments in
general is subject to fluctuations in local market conditions, including
fluctuations in the supply of and demand for similar properties, and the success
of our investments will depend, to some extent, on the economic and real estate
market conditions prevailing in the markets where our investments are located.
Since the investments are located in a limited geographical region, they may be
subject to a greater risk of delinquency or default if the industries
concentrated there suffer adverse economic or business developments.
Realization of Assets. The Company's liquidity and ability to meet its
obligations as they become due are subject to, among other things, its ability
to obtain timely repayments or other dispositions of its investments. Many of
the investments rely on the completion and sale of the developed real estate in
order to realize repayment or other disposition proceeds. In the event that
proceeds from repayments or other investment dispositions are not sufficient to
timely meet our commitments and credit facilities are not extended on terms
favorable to us, we may be forced to sell some of our investments prematurely.
In such cases, the amount of proceeds received could be substantially less than
what we would have expected if we allowed a proper marketing period for the
investment. This would have a negative impact on the estimated net realizable
value of our assets and would force the Company to adopt an alternative strategy
that may include actions such as seeking additional capital or further
downsizing. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
Other. In addition, we are subject to other significant business and financial
risks, including but not limited to liquidity, the prevailing market for
residential real estate, fluctuations in prevailing interest rates, timely
completion of projects by developers, uninsured risks such as earthquake and
other casualty damage that may be uninsurable or insurable only at economically
unfeasible costs, and potential environmental liabilities relating to properties
on which we have made investments or received through foreclosure.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
(a) Not Applicable.
(b) Not Applicable.
(c) Repurchases of Equity Securities.
Between October 1, 2008 and December 31, 2008, we repurchased 419,437
shares of our common stock. See Note 9 of the Notes to the Condensed
Consolidated Financial Statements (unaudited) included in Part I, Item 1
above, for a discussion of this repurchase of shares.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
19
ITEM 5. OTHER INFORMATION.
Not applicable.
ITEM 6. EXHIBITS.
(a) Exhibits
Exhibits submitted with this Form 10-Q, as filed with the Securities and
Exchange Commission, or those incorporated by reference to other filings
are:
Exhibit No. Description of Exhibit
3(i) Articles of Incorporation of the Company is
incorporated by reference to Exhibit 3(i) to the
Company's Form 10-12 G/A, previously filed on April
28, 2000
3(ii) Bylaws, Amended March 30, 2000 is incorporated by
reference to Exhibit 3(ii) to the Company's Form
10-12 G/A, previously filed on April 28, 2000
3(iii) Articles Supplementary of the Company is incorporated
by reference to Exhibit 99.1 to the Company's Form
10-12 G/A, previously filed on April 28, 2000
3(iv) Specimen Stock Certificate, is incorporated by reference
to Exhibit 99.2 to the Company's Form 10-12 G/A,
previously filed on April 28, 2000
4.1 Shareholder Rights Agreement dated July 19, 2004 is
incorporated by reference to Exhibit 4.4 in the
Form 8-K previously filed July 20, 2004
10.1 Compensation Agreement dated May 12, 2007 between
BellaVista Capital, Inc. and Michael Rider is
incorporated by reference to Exhibit 10.1 to the
Company's March 31, 2007 Form 10-QSB, previously
filed on May 21, 2007
10.2 Compensation Agreement dated May 12, 2007 between
BellaVista Capital, Inc. and Eric Hanke is
incorporated by reference to Exhibit 10.2 to the
Company's March 31, 2007 Form 10-QSB, previously
filed on May 21, 2007
10.3 Compensation Agreement dated September 25, 2007
between BellaVista Capital, Inc. and William
Offenberg, is incorporated by reference to Exhibit
10.4 to the Company's Annual Report on Form 10-KSB
for the year ended September 30, 2007, filed on
December 31, 2007
10.4 Management Agreement between BellaVista and RMRF
Enterprises, Inc., dba Cupertino Capital is
incorporated by reference to Exhibit 10.4 to the
Company's Annual Report on Form 10-KSB for the year
ended September 30, 2008, filed on January 3, 2009
11.1 Statement regarding computation of per share earnings
14.1 Code of Ethics is incorporated by reference to
Exhibit 14.1 to the Company's 2003 Form 10-K,
previously filed on April 14, 2004
31.1 Certification of Chief Executive Officer
31.2 Certification of Chief Financial Officer
32.1 Certification Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002
32.2 Certification Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002
20
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: February 24, 2009 /s/ WILLIAM OFFENBERG
--------------------------------
William Offenberg, Chief Executive Officer
21