UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
Quarterly Report Under Section 13 or 15(d)
of The Securities Exchange Act of 1934
For the Quarter Ended: June 30, 2006
Commission file number: 000-50609
AEI INCOME & GROWTH FUND 25 LLC
(Exact Name of Small Business Issuer as Specified in its Charter)
State of Delaware 75-3074973
(State or other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
30 East 7th Street, Suite 1300, St. Paul, Minnesota 55101
(Address of Principal Executive Offices)
(651) 227-7333
(Issuer's telephone number)
Not Applicable
(Former name, former address and former fiscal year, if changed
since last report)
Check whether the issuer (1) filed all reports required to be
filed by Section 13 or 15(d) of the Exchange Act during the past
12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No
Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Exchange Act). Yes No [X]
Transitional Small Business Disclosure Format: Yes No [X]
AEI INCOME & GROWTH FUND 25 LLC
INDEX
PART I. Financial Information
Item 1. Balance Sheet as of June 30, 2006 and December 31, 2005
Statements for the Periods ended June 30, 2006 and 2005:
Income
Cash Flows
Changes in Members' Equity
Notes to Financial Statements
Item 2. Management's Discussion and Analysis
Item 3. Controls and Procedures
PART II. Other Information
Item 1. Legal Proceedings
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits
Signatures
AEI INCOME & GROWTH FUND 25 LLC
BALANCE SHEET
JUNE 30, 2006 AND DECEMBER 31, 2005
(Unaudited)
ASSETS
2006 2005
CURRENT ASSETS:
Cash and Cash Equivalents $ 1,542,913 $ 3,249,144
INVESTMENTS IN REAL ESTATE:
Land 10,761,462 11,315,152
Buildings and Equipment 22,657,975 22,779,696
Accumulated Depreciation (1,045,776) (702,355)
----------- -----------
32,373,661 33,392,493
Real Estate Held for Sale 2,131,848 0
----------- -----------
Net Investments in Real Estate 34,505,509 33,392,493
----------- -----------
Total Assets $36,048,422 $36,641,637
=========== ===========
LIABILITIES AND MEMBERS' EQUITY
CURRENT LIABILITIES:
Payable to AEI Fund Management, Inc. $ 30,249 $ 277,334
Distributions Payable 546,841 594,459
Unearned Rent 98,265 0
----------- -----------
Total Current Liabilities 675,355 871,793
----------- -----------
MEMBERS' EQUITY (DEFICIT):
Managing Members' Equity (7,801) 4,102
Limited Members' Equity, $1,000 per Unit;
50,000 Units authorized;
42,435 Units issued and outstanding 35,380,868 35,765,742
----------- -----------
Total Members' Equity 35,373,067 35,769,844
----------- -----------
Total Liabilities and Members' Equity $36,048,422 $36,641,637
=========== ===========
The accompanying Notes to Financial Statements are an integral
part of this statement.
AEI INCOME & GROWTH FUND 25 LLC
STATEMENT OF INCOME
FOR THE PERIODS ENDED JUNE 30
(Unaudited)
Three Months Ended Six Months Ended
6/30/06 6/30/05 6/30/06 6/30/05
RENTAL INCOME $ 622,072 $ 306,127 $ 1,229,742 $ 511,843
EXPENSES:
LLC Administration -
Affiliates 89,128 95,494 182,575 163,137
LLC Administration and
Property Management -
Unrelated Parties 9,702 19,602 26,903 32,585
Depreciation 232,699 106,171 458,934 174,152
--------- --------- ----------- ---------
Total Expenses 331,529 221,267 668,412 369,874
--------- --------- ----------- ---------
OPERATING INCOME 290,543 84,860 561,330 141,969
OTHER INCOME:
Interest Income 14,300 104,697 35,293 176,351
--------- --------- ----------- ---------
INCOME FROM CONTINUING
OPERATIONS 304,843 189,557 596,623 318,320
Income from Discontinued
Operations 57,125 61,954 100,281 124,192
--------- --------- ----------- ---------
NET INCOME $ 361,968 $ 251,511 $ 696,904 $ 442,512
========= ========= =========== =========
NET INCOME ALLOCATED:
Managing Members $ 10,859 $ 7,545 $ 20,907 $ 13,275
Limited Members 351,109 243,966 675,997 429,237
--------- --------- ----------- ---------
$ 361,968 $ 251,511 $ 696,904 $ 442,512
========= ========= =========== =========
NET INCOME PER LLC UNIT:
Continuing Operations $ 6.97 $ 4.82 $ 13.64 $ 8.91
Discontinued Operations 1.30 1.58 2.29 3.48
--------- --------- ----------- ---------
Total $ 8.27 $ 6.40 $ 15.93$ 12.39
========= ========= =========== =========
Weighted Average Units
Outstanding 42,435 38,104 42,435 34,655
========= ========= =========== =========
The accompanying Notes to Financial Statements are an integral
part of this statement.
AEI INCOME & GROWTH FUND 25 LLC
STATEMENT OF CASH FLOWS
FOR THE SIX-MONTH PERIODS ENDED JUNE 30
(Unaudited)
2006 2005
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 696,904 $ 442,512
Adjustments To Reconcile Net Income
To Net Cash Provided By Operating Activities:
Depreciation 473,079 214,974
Decrease in Receivables 0 6,259
Increase (Decrease) in Payable to
AEI Fund Management, Inc. (247,085) 95,071
Increase in Unearned Rent 98,265 42,098
----------- -----------
Total Adjustments 324,259 358,402
----------- -----------
Net Cash Provided By
Operating Activities 1,021,163 800,914
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investments in Real Estate (1,586,095) (10,980,679)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Capital Contributions from Limited Members 0 12,947,884
Organization and Syndication Costs 0 (1,626,758)
Increase (Decrease) in Distributions Payable (47,618) 148,776
Distributions to Members (1,093,681) (759,192)
----------- -----------
Net Cash Provided By (Used For)
Financing Activities (1,141,299) 10,710,710
----------- -----------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS (1,706,231) 530,945
CASH AND CASH EQUIVALENTS, beginning of period 3,249,144 15,417,372
----------- -----------
CASH AND CASH EQUIVALENTS, end of period $ 1,542,913 $15,948,317
=========== ===========
The accompanying Notes to Financial Statements are an integral
part of this statement.
AEI INCOME & GROWTH FUND 25 LLC
STATEMENT OF CHANGES IN MEMBERS' EQUITY
FOR THE PERIODS ENDED JUNE 30
(Unaudited)
Limited
Member
Managing Limited Units
Members Members Total Outstanding
BALANCE, December 31, 2004 $ (7,203) $24,966,909 $24,959,706 29,591.88
Capital Contributions 0 12,947,884 12,947,884 12,947.88
Organization and
Syndication Costs 0 (1,626,758) (1,626,758)
Distributions (22,776) (736,416) (759,192)
Net Income 13,275 429,237 442,512
-------- ----------- ----------- ----------
BALANCE, June 30, 2005 $(16,704) $35,980,856 $35,964,152 42,539.76
======== =========== =========== ==========
BALANCE, December 31, 2005 $ 4,102 $35,765,742 $35,769,844 42,434.76
Distributions (32,810) (1,060,871) (1,093,681)
Net Income 20,907 675,997 696,904
-------- ----------- ----------- ----------
BALANCE, June 30, 2006 $ (7,801) $35,380,868 $35,373,067 42,434.76
======== =========== =========== ==========
The accompanying Notes to Financial Statements are an integral
part of this statement.
AEI INCOME & GROWTH FUND 25 LLC
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2006
(Unaudited)
(1) The condensed statements included herein have been prepared
by the Company, without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission, and
reflect all adjustments which are, in the opinion of
management, necessary to a fair statement of the results of
operations for the interim period, on a basis consistent with
the annual audited statements. The adjustments made to these
condensed statements consist only of normal recurring
adjustments. Certain information, accounting policies, and
footnote disclosures normally included in financial
statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant
to such rules and regulations, although the Company believes
that the disclosures are adequate to make the information
presented not misleading. It is suggested that these
condensed financial statements be read in conjunction with
the financial statements and the summary of significant
accounting policies and notes thereto included in the
Company's latest annual report on Form 10-KSB.
(2) Organization -
AEI Income & Growth Fund 25 LLC (the Company), a Limited
Liability Company, was formed on June 24, 2002 to acquire
and lease commercial properties to operating tenants. The
Company's operations are managed by AEI Fund Management XXI,
Inc. (AFM), the Managing Member. Robert P. Johnson, the
President and sole director of AFM, serves as the Special
Managing Member. AFM is a wholly owned subsidiary of AEI
Capital Corporation of which Mr. Johnson is the majority
shareholder. AEI Fund Management, Inc. (AEI), an affiliate
of AFM, performs the administrative and operating functions
for the Company.
The terms of the offering called for a subscription price of
$1,000 per LLC Unit, payable on acceptance of the offer.
The Company commenced operations on September 11, 2003 when
minimum subscriptions of 1,500 LLC Units ($1,500,000) were
accepted. The offering terminated May 12, 2005, when the
extended offering period expired. The Company received
subscriptions for 42,539.763 Units. Under the terms of the
Operating Agreement, the Limited Members and Managing
Members contributed funds of $42,539,763 and $1,000,
respectively. The Company shall continue until December 31,
2053, unless dissolved, terminated and liquidated prior to
that date.
During operations, any Net Cash Flow, as defined, which the
Managing Members determine to distribute will be distributed
97% to the Limited Members and 3% to the Managing Members.
Distributions to Limited Members will be made pro rata by
Units.
AEI INCOME & GROWTH FUND 25 LLC
NOTES TO FINANCIAL STATEMENTS
(Continued)
(2) Organization - (Continued)
Any Net Proceeds of Sale, as defined, from the sale or
financing of properties which the Managing Members determine
to distribute will, after provisions for debts and reserves,
be paid in the following manner: (i) first, 99% to the
Limited Members and 1% to the Managing Members until the
Limited Members receive an amount equal to: (a) their
Adjusted Capital Contribution plus (b) an amount equal to 7%
of their Adjusted Capital Contribution per annum, cumulative
but not compounded, to the extent not previously distributed
from Net Cash Flow; (ii) any remaining balance will be
distributed 90% to the Limited Members and 10% to the
Managing Members. Distributions to the Limited Members will
be made pro rata by Units.
For tax purposes, profits from operations, other than
profits attributable to the sale, exchange, financing,
refinancing or other disposition of property, will be
allocated 97% to the Limited Members and 3% to the Managing
Members. Net losses from operations will be allocated 99%
to the Limited Members and 1% to the Managing Members.
For tax purposes, profits arising from the sale, financing,
or other disposition of property will be allocated in
accordance with the Operating Agreement as follows: (i)
first, to those Members with deficit balances in their
capital accounts in an amount equal to the sum of such
deficit balances; (ii) second, 99% to the Limited Members
and 1% to the Managing Members until the aggregate balance
in the Limited Members' capital accounts equals the sum of
the Limited Members' Adjusted Capital Contributions plus an
amount equal to 7% of their Adjusted Capital Contributions
per annum, cumulative but not compounded, to the extent not
previously allocated; (iii) third, the balance of any
remaining gain will then be allocated 90% to the Limited
Members and 10% to the Managing Members. Losses will be
allocated 99% to the Limited Members and 1% to the Managing
Members.
The Managing Members are not required to currently fund a
deficit capital balance. Upon liquidation of the Company or
withdrawal by a Managing Member, the Managing Members will
contribute to the Company an amount equal to the lesser of
the deficit balances in their capital accounts or 1.01% of
the total capital contributions of the Limited Members over
the amount previously contributed by the Managing Members.
(3) Reclassification -
Certain items in the prior year's financial statements have
been reclassified to conform to 2006 presentation. These
reclassifications had no effect on Members' capital, net
income or cash flows.
AEI INCOME & GROWTH FUND 25 LLC
NOTES TO FINANCIAL STATEMENTS
(Continued)
(4) Investments in Real Estate -
On November 2, 2004, the Company purchased a parcel of land
in Pueblo, Colorado for $622,500. The Company obtained
title to the land in the form of an undivided fee simple
interest. The land is leased to Kona Restaurant Group (KRG)
under a Lease Agreement with a primary term of 17 years and
annual rental payments of $35,794. Effective March 31,
2005, the annual rent was increased to $50,423.
Simultaneously with the purchase of the land, the Company
entered into a Development Financing Agreement under which
the Company advanced funds to KRG for the construction of a
Johnny Carino's restaurant on the site. Pursuant to the
Lease, any improvements to the land during the term of the
Lease become the property of the lessor. Initially, the
Company charged interest on the advances at a rate of 5.75%.
Effective March 31, 2005, the interest rate was increased to
8.1%. On June 20, 2005, after the development was
completed, the Lease Agreement was amended to require annual
rental payments of $182,663. Total acquisition costs,
including the cost of the land, were $2,291,218.
On January 14, 2005, the Company purchased a 60% interest in
a Jared Jewelry store in Auburn Hills, Michigan for
$2,199,067. The property is leased to Sterling Jewelers
Inc. under a Lease Agreement with a remaining primary term
of 15 years and annual rental payments of $153,780. The
remaining interest in the property was purchased by AEI
Income & Growth Fund XXI Limited Partnership, an affiliate
of the Company.
On February 9, 2005, the Company purchased a Tractor Supply
Company store in Marion, Indiana for $2,939,385. The
property is leased to Tractor Supply Company under a Lease
Agreement with a primary term of 15 years and annual rental
payments of $210,014.
On March 18, 2005, the Company purchased a 45% interest in a
CarMax auto superstore in Lithia Springs, Georgia for
$4,242,438. The property is leased to CarMax Auto
Superstores, Inc. under a Lease Agreement with a remaining
primary term of 13.4 years and annual rental payments of
$306,180. The remaining interests in the property were
purchased by AEI Income & Growth Fund XXI Limited
Partnership, AEI Income & Growth Fund 24 LLC and AEI Private
Net Lease Millennium Fund Limited Partnership, affiliates of
the Company.
On October 25, 2005, the Company purchased a Tractor Supply
Company store in Yankton, South Dakota for $2,265,936. The
property is leased to Tractor Supply Company under a Lease
Agreement with a remaining primary term of 13.2 years and
annual rental payments of $164,712.
On December 1, 2005, the Company purchased a Jared Jewelry
store in Concord, New Hampshire for $4,157,634. The
property is leased to Sterling Jewelers Inc. under a Lease
Agreement with a primary term of 20 years and annual rental
payments of $286,495.
AEI INCOME & GROWTH FUND 25 LLC
NOTES TO FINANCIAL STATEMENTS
(Continued)
(4) Investments in Real Estate - (Continued)
On December 16, 2005, the Company completed the acquisition
of a Jared Jewelry store in Aurora, Illinois by purchasing
the building for $1,992,600. Previously, on November 21,
2005, the Company purchased the land under the building for
$2,200,000. Total acquisition costs, including acquisition
expenses, were $4,271,332. The land and building are leased
to Sterling Jewelers Inc. under Lease Agreements with
remaining primary terms of 14.4 years and annual rental
payments of $306,353.
On December 22, 2005, the Company purchased a 60% interest
in a Gart Sports store in Wichita, Kansas for $3,346,155.
The property is leased to TSA Stores, Inc. under a Lease
Agreement with a remaining primary term of 11.2 years and
annual rental payments of $279,088. The store was converted
into a Sports Authority store in May 2006. The remaining
interest in the property is owned by AEI Income & Growth
Fund 26 LLC, an affiliate of the Company.
On February 17, 2006, the Company purchased an Advance Auto
Parts store in Brownsville, Texas for $1,584,095. The
property is leased to Advance Stores Company, Inc. under a
Lease Agreement with a remaining primary term of 14.5 years
and annual rental payments of $109,973.
(5) Payable to AEI Fund Management, Inc. -
AEI Fund Management, Inc. performs the administrative and
operating functions for the Company. The payable to AEI
Fund Management represents the balance due for those
services. This balance is non-interest bearing and
unsecured and is to be paid in the normal course of
business.
(6) Discontinued Operations -
During the fourth quarter of 2005, the Company sold its 50%
interest in the Mimi's Cafe restaurant in Kansas City,
Missouri, in three separate transactions, to unrelated third
parties. The Company received total net sale proceeds of
$1,507,118, which resulted in a net gain of $434,154. The
cost and related accumulated depreciation of the interests
sold was $1,110,561 and $37,597, respectively.
In April 2006, the Company entered into an agreement to sell
its 75% interest in the Tia's Tex-Mex restaurant in Brandon,
Florida to an unrelated third party. The buyer was not able
to complete the purchase and the agreement was terminated.
The Company is seeking another buyer for the property. At
June 30, 2006, the property was classified as Real Estate
Held for Sale with a book value of $2,131,848.
AEI INCOME & GROWTH FUND 25 LLC
NOTES TO FINANCIAL STATEMENTS
(Continued)
(6) Discontinued Operations - (Continued)
The financial results for these properties are reflected as
Discontinued Operations in the accompanying financial
statements. The following are the results of discontinued
operations for the periods ended June 30:
Three Months Ended Six Months Ended
6/30/06 6/30/05 6/30/06 6/30/05
Rental Income $ 57,563 $ 82,813 $ 114,938 $ 165,625
Property Management Expenses (438) (448) (512) (611)
Depreciation 0 (20,411) (14,145) (40,822)
-------- -------- --------- ---------
Income from
Discontinued Operations $ 57,125 $ 61,954 $ 100,281 $ 124,192
======== ======== ========= =========
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS.
The Management's Discussion and Analysis contains various
"forward looking statements" within the meaning of federal
securities laws which represent management's expectations or
beliefs concerning future events, including statements regarding
anticipated application of cash, expected returns from rental
income, growth in revenue, taxation levels, the sufficiency of
cash to meet operating expenses, rates of distribution, and other
matters. These, and other forward looking statements made by our
managers, must be evaluated in the context of a number of factors
that may affect our financial condition and results of
operations, including the following:
Market and economic conditions which affect the value
of the properties we own and the cash from rental
income such properties generate;
the federal income tax consequences of rental income,
deductions, gain on sales and other items and the
affects of these consequences for members;
resolution by our managers of conflicts with which they
may be confronted;
the success of our managers of locating properties with
favorable risk return characteristics;
the effect of tenant defaults; and
the condition of the industries in which the tenants of
properties owned by the Company operate.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS. (Continued)
The Application of Critical Accounting Policies
The preparation of the Company's financial statements
requires management to make estimates and assumptions that may
affect the reported amounts of assets, liabilities, revenues and
expenses, and related disclosure of contingent assets and
liabilities. Management evaluates these estimates on an ongoing
basis, including those related to the carrying value of real
estate and the allocation by AEI Fund Management, Inc. of
expenses to the Company as opposed to other funds they manage.
The Company purchases properties and records them in the
financial statements at the lower of cost or estimated realizable
value. The Company initially records the properties at cost
(including capitalized acquisition expenses). The Company is
required to periodically evaluate the carrying value of
properties to determine whether their realizable value has
declined. For properties the Company will hold and operate,
management determines whether impairment has occurred by
comparing the property's probability-weighted cash flows to its
current carrying value. For properties held for sale, management
determines whether impairment has occurred by comparing the
property's estimated fair value less cost to sell to its current
carrying value. If the carrying value is greater than the
realizable value, an impairment loss is recorded to reduce the
carrying value of the property to its realizable value. A change
in these assumptions or analysis could cause material changes in
the carrying value of the properties.
AEI Fund Management, Inc. allocates expenses to each of
the funds they manage primarily on the basis of the number of
hours devoted by their employees to each fund's affairs. They
also allocate expenses at the end of each month that are not
directly related to a fund's operations based upon the number of
investors in the fund and the fund's capitalization relative to
other funds they manage. The Company reimburses these expenses
subject to detailed limitations contained in the Operating
Agreement.
Management of the Company has discussed the development
and selection of the above accounting estimates and the
management discussion and analysis disclosures regarding them
with the managing member of the Company.
Results of Operations
For the six months ended June 30, 2006 and 2005, the
Company recognized rental income from continuing operations of
$1,229,742 and $511,843, respectively. In 2006, rental income
increased mainly due to additional rent received from nine
property acquisitions in 2005 and 2006 as the Company invested
its available subscription proceeds.
For the six months ended June 30, 2006 and 2005, the
Company incurred LLC administration expenses from affiliated
parties of $182,575 and $163,137, respectively. These
administration expenses include costs associated with the
management of the properties, processing distributions, reporting
requirements and correspondence to the Limited Members. During
the same periods, the Company incurred LLC administration and
property management expenses from unrelated parties of $26,903
and $32,585, respectively. These expenses represent direct
payments to third parties for legal and filing fees, direct
administrative costs, outside audit costs, taxes, insurance and
other property costs.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS. (Continued)
For the six months ended June 30, 2006 and 2005, the
Company recognized interest income of $35,293 and $176,351,
respectively. In 2006, interest income decreased due to the
Company receiving interest income from construction advances in
2005 and the Company having less money invested in money market
accounts due to property acquisitions.
In accordance with Statement of Financial Accounting
Standards No. 144, Accounting for the Impairment or Disposal of
Long-Lived Assets, upon complete disposal of a property or
classification of a property as Real Estate Held for Sale, the
Company includes the operating results and sale of the property
in discontinued operations. In addition, the Company
reclassifies the prior periods operating results and any partial
sales of the property to discontinued operations. For the six
months ended June 30, 2006 and 2005, the Company recognized
income from discontinued operations of $100,281 and $124,192,
respectively, representing rental income less property management
expenses and depreciation.
During the fourth quarter of 2005, the Company sold its
50% interest in the Mimi's Cafe restaurant in Kansas City,
Missouri, in three separate transactions, to unrelated third
parties. The Company received total net sale proceeds of
$1,507,118, which resulted in a net gain of $434,154. The cost
and related accumulated depreciation of the interests sold was
$1,110,561 and $37,597, respectively.
In April 2006, the Company entered into an agreement to
sell its 75% interest in the Tia's Tex-Mex restaurant in Brandon,
Florida to an unrelated third party. The buyer was not able to
complete the purchase and the agreement was terminated. The
Company is seeking another buyer for the property. At June 30,
2006, the property was classified as Real Estate Held for Sale
with a book value of $2,131,848.
Inflation has had a minimal effect on income from
operations. Leases may contain rent increases, based on the
increase in the Consumer Price Index over a specified period,
which will result in an increase in rental income over the term
of the leases. In addition, leases may contain rent clauses
which entitle the Company to receive additional rent in future
years if gross receipts for the property exceed certain specified
amounts. Increases in sales volumes of the tenants, due to
inflation and real sales growth, may result in an increase in
rental income over the term of the leases. Inflation also may
cause the real estate to appreciate in value. However, inflation
and changing prices may have an adverse impact on the operating
margins of the properties' tenants, which could impair their
ability to pay rent and subsequently reduce the Net Cash Flow
available for distributions.
Liquidity and Capital Resources
The Company's primary sources of cash are proceeds from
the sale of Units, interest income, rental income and proceeds
from the sale of property. Its primary uses of cash are
investment in real properties, payment of expenses involved in
the sale of Units, the management of properties, the organization
and administration of the Company, and the payment of
distributions.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS. (Continued)
The Company generated $1,021,163 of cash from operations
during the six months ended June 30, 2006, representing net
income of $696,904 and a non-cash expense of $473,079 for
depreciation, which were partially offset by $148,820 of net
timing differences in the collection of payments from the tenants
and the payment of expenses. The Company generated $800,914 of
cash from operations during the six months ended June 30, 2005,
representing net income of $442,512, a non-cash expense of
$214,974 for depreciation and $143,428 of net timing differences
in the collection of payments from the lessees and the payment of
expenses.
The major components of the Company's cash flow from
investing activities are investments in real estate and proceeds
from the sale of real estate. During the six months ended June
30, 2006 and 2005, the Company expended $1,586,095 and
$10,980,679 to invest in real properties (inclusive of
acquisition expenses).
On November 2, 2004, the Company purchased a parcel of
land in Pueblo, Colorado for $622,500. The Company obtained
title to the land in the form of an undivided fee simple
interest. Simultaneously with the purchase of the land, the
Company entered into a Development Financing Agreement under
which the Company advanced funds to KRG for the construction of a
Johnny Carino's restaurant on the site. Pursuant to the Lease,
any improvements to the land during the term of the Lease become
the property of the lessor. Initially, the Company charged
interest on the advances at a rate of 5.75%. Effective March 31,
2005, the interest rate was increased to 8.1%. On June 20, 2005,
the development was completed. Total acquisition costs,
including the cost of the land, were $2,291,218.
On January 14, 2005, the Company purchased a 60% interest
in a Jared Jewelry store in Auburn Hills, Michigan for
$2,199,067. On February 9, 2005, the Company purchased a Tractor
Supply Company store in Marion, Indiana for $2,939,385. On March
18, 2005, the Company purchased a 45% interest in a CarMax auto
superstore in Lithia Springs, Georgia for $4,242,438. On October
25, 2005, the Company purchased a Tractor Supply Company store in
Yankton, South Dakota for $2,265,936. On December 1, 2005, the
Company purchased a Jared Jewelry store in Concord, New Hampshire
for $4,157,634. On December 16, 2005, the Company completed the
acquisition of a Jared Jewelry store in Aurora, Illinois for
$4,271,332. On December 22, 2005, the Company purchased a 60%
interest in a Gart Sports store in Wichita, Kansas for
$3,346,155.
On February 17, 2006, the Company purchased an Advance
Auto Parts store in Brownsville, Texas for $1,584,095.
During the offering of Units, the Company's primary source
of cash flow was from the sale of LLC Units. The Company
commenced the offering of LLC Units to the public through a
registration statement that became effective May 13, 2003 and
continued until May 12, 2005, when the extended offering period
expired. The Company raised a total of $42,434,763 from the sale
of 42,434.763 Units. From subscription proceeds, the Company
paid organization and syndication costs (which constitute a
reduction of capital) of $6,045,745.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS. (Continued)
After completion of the acquisition phase, the Company's
primary use of cash flow is distribution and redemption payments
to Members. The Company declares its regular quarterly
distributions before the end of each quarter and pays the
distribution in the first ten days after the end of each quarter.
The Company attempts to maintain a stable distribution rate from
quarter to quarter.
For the six months ended June 30, 2006 and 2005, the
Company declared distributions of $1,093,681 and $759,192,
respectively. Pursuant to the Operating Agreement, distributions
of Net Cash Flow were allocated 97% to the Limited Members and 3%
to the Managing Members. Distributions of Net Proceeds of Sale
were allocated 99% to the Limited Members and 1% to the Managing
Members. The Limited Members received distributions of
$1,060,871 and $736,416 and the Managing Members received
distributions of $32,810 and $22,776 for the periods,
respectively. In 2006, distributions were higher due to an
increase in the distribution rate per Unit, effective January 1,
2006, and an increase in the number of Units outstanding from the
sale of additional Units through May 12, 2005.
Beginning in September 2006, the Company may acquire Units
from Limited Members who have tendered their Units to the
Company. Such Units may be acquired at a discount. The Company
will not be obligated to purchase in any year more than 2% of the
total number of Units outstanding on January 1 of such year. In
no event shall the Company be obligated to purchase Units if, in
the sole discretion of the Managing Member, such purchase would
impair the capital or operation of the Company.
The continuing rent payments from the properties, together
with cash generated from property sales, should be adequate to
fund continuing distributions and meet other Company obligations
on both a short-term and long-term basis.
ITEM 3. CONTROLS AND PROCEDURES.
(a) Evaluation of disclosure controls and procedures
Under the supervision and with the participation of
management, including its President and Chief Financial Officer,
the Managing Member of the Company evaluated the effectiveness of
the design and operation of its disclosure controls and
procedures (as defined in Rule 13a-14(c) under the Exchange Act).
Based upon that evaluation, the President and Chief Financial
Officer of the Managing Member concluded that, as of the end of
the period covered by this report, the disclosure controls and
procedures of the Company are adequately designed to ensure that
information required to be disclosed by us in the reports we file
or submit under the Exchange Act is recorded, processed,
summarized and reported, within the time periods specified in
applicable rules and forms.
(b) Changes in internal controls
There were no significant changes made in the Company's
internal controls during the most recent period covered by this
report that have materially affected, or are reasonably likely to
materially affect, the Company's internal control over financial
reporting.
PART II - OTHER INFORMATION
ITEM 1.LEGAL PROCEEDINGS
There are no material pending legal proceedings to which
the Company is a party or of which the Company's property is
subject.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF
PROCEEDS
(a) During the period covered by this report, the Company
did not sell any equity securities that are not registered under
the Securities Act of 1933.
(b) Not Applicable.
(c) Beginning in September 2006, pursuant to Section 7.7
of the Operating Agreement, each Limited Member has the right to
present Units to the Company for purchase by submitting notice to
the Managing Member during January or July of each year. The
purchase price of the Units is equal to 80% of the net asset
value of the Units, as of the first business day of January or
July of each year, as determined by the Managing Member in
accordance with the provisions of the Operating Agreement. Units
tendered to the Company during January and July are redeemed on
April 1st and October 1st, respectively, of each year subject to
the following limitations. The Company will not be obligated to
purchase in any year more than 2% of the total number of Units
outstanding on January 1 of such year. In no event shall the
Company be obligated to purchase Units if, in the sole discretion
of the Managing Member, such purchase would impair the capital or
operation of the Company. During the period covered by this
report, the Company did not purchase any Units.
ITEM 3.DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4.SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5.OTHER INFORMATION
None.
ITEM 6.EXHIBITS
31.1 Certification of Chief Executive Officer of Managing
Member pursuant to Rule 15d-14(a)(17 CFR 240.15d-14(a)) and
Section 302 of the Sarbanes-Oxley Act of 2002.
31.2 Certification of Chief Financial Officer of Managing
Member pursuant to Rule 15d-14(a)(17 CFR 240.15d-14(a)) and
Section 302 of the Sarbanes-Oxley Act of 2002.
32 Certification of Chief Executive Officer and Chief
Financial Officer of Managing Member pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.
SIGNATURES
In accordance with the requirements of the Exchange Act,
the registrant caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
Dated: August 4, 2006 AEI Income & Growth Fund 25 LLC
By: AEI Fund Management XXI, Inc.
Its: Managing Member
By: /s/ Robert P Johnson
Robert P. Johnson
President
(Principal Executive Officer)
By: /s/ Patrick W Keene
Patrick W. Keene
Chief Financial Officer
(Principal Accounting Officer)