-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, PEzwYETEWArSU7S4JT2LEWOAZQBWj1Jj3CwIqzun1Ad+dIx0+T4SjBNdiH9OW0xW K2LCzkdMM5ikT/0wmsp1bQ== 0001011723-08-000023.txt : 20080618 0001011723-08-000023.hdr.sgml : 20080618 20080618131514 ACCESSION NUMBER: 0001011723-08-000023 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20080331 FILED AS OF DATE: 20080618 DATE AS OF CHANGE: 20080618 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BELLAVISTA CAPITAL INC CENTRAL INDEX KEY: 0001086670 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 943324992 STATE OF INCORPORATION: MD FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-30507 FILM NUMBER: 08905197 BUSINESS ADDRESS: STREET 1: 420 FLORENCE STREET, SUITE 200 CITY: PALO ALTO STATE: CA ZIP: 94301 BUSINESS PHONE: 6503283060 MAIL ADDRESS: STREET 1: 420 FLORENCE STREET, SUITE 200 CITY: PALO ALTO STATE: CA ZIP: 94301 FORMER COMPANY: FORMER CONFORMED NAME: PRIMECORE MORTGAGE TRUST INC DATE OF NAME CHANGE: 20000425 10QSB 1 bellavista10qsb33108.txt QUARTERLY REPORT UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-QSB [ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 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 small business issuer 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 95030 (Address of principal offices) (zip code) (650) 328-3060 (Registrant's telephone number, including area code) Indicate by check mark whether the small business issuer (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the small business issuer 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 small business issuer is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X] The number of shares of common stock outstanding as of May 28, 2008 was 11,821,317. Table of Contents Part I. Financial Information Item 1. Financial Statements (unaudited) 2 Condensed Consolidated Balance Sheets as of March 31, 2008 (unaudited) and September 30, 2007 (audited) 3 Condensed Consolidated Statements of Operations for the Three Months and Six Months Ended March 31, 2008 and 2007 (unaudited) 4 Condensed Consolidated Statement of Shareholders' Equity for the Six Months Ended March 31, 2008 (unaudited) 5 Condensed Consolidated Statements of Cash Flows for the Six Months Ended March 31, 2008 and 2007 (unaudited) 6 Notes to the Condensed Consolidated Financial Statements (unaudited) 7 Item 2. Management's Discussion and Analysis or Plan of Operation 15 Item 3A(T). Controls and Procedures 20 Part II. Other Information Item 1. Legal Proceedings 21 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 21 Item 3. Defaults Upon Senior Securities 21 Item 4. Submission of Matters to a Vote of Security Holders 21 Item 5. Other Information 21 Item 6. Exhibits 21 Signatures 22 1 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 March 31, 2008 (unaudited), and September 30, 2007 (audited) (2) Condensed Consolidated Statements of Operations for the Three Months and Six Months ended March 31. 2008 and 2007 (unaudited) (3) Condensed Consolidated Statement of Shareholders' Equity for the Six Months ended March 31, 2008 (unaudited) (4) Condensed Consolidated Statements of Cash Flows for the Six Months ended March 31, 2008 and 2007 (unaudited) (5) 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 year ended September 30, 2007 as filed with the Securities and Exchange Commission in our Annual Report on Form 10-KSB filed December 31, 2007. 2 BELLAVISTA CAPITAL, INC. CONDENSED CONSOLIDATED BALANCE SHEETS
March 31, 2008 September 30, 2007 (unaudited) (audited) ------------------ ------------------- ASSETS: Cash and cash equivalents $ 1,740,604 $ 1,759,241 Loans receivable secured by real estate 10,617,277 11,163,000 Joint venture investments in real estate developments 23,832,491 33,704,973 Direct investments in real estate developments 20,764,064 5,213,220 Property, plant and equipment, net 9,039 32,220 Other assets 419,363 958,201 ------------------ ------------------- Total assets $ 57,382,838 $ 52,830,855 ================== =================== LIABILITIES AND SHAREHOLDERS' EQUITY: Secured notes payable $ 13,477,307 $ -- Accrued expenses and other 2,069,714 587,791 Capital lease 6,849 9,521 ------------------ ------------------- Total liabilities $ 15,553,870 $ 597,312 SHAREHOLDERS' EQUITY: Common stock: par value $0.01, 50,000,000 shares authorized; 12,537,504 and 13,951,452 shares issued and outstanding at March 31, 2008 and September 30, 2007, respectively 196,237,988 198,812,376 Accumulated dividends and distributions (90,621,455) (90,621,455) Accumulated deficit (63,766,858) (55,957,378) ------------------ ------------------- Total shareholders' equity 41,849,675 52,233,543 ------------------ ------------------- Total liabilities and shareholders' equity $ 57,382,838 $ 52,830,855 ================== ===================
The accompanying notes are an integral part of these statements 3 BELLAVISTA CAPITAL, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
Three Months Ended March 31, Six Months ended March 31, ------------------ ------------------------------------- ------------------ 2008 2007 2008 2007 ------------------ ------------------ ------------------ ------------------ REVENUES: Revenue from loans secured by real estate $ 130,972 $ 427,782 $ 455,018 $ 876,069 Net revenue from joint venture investments 673,589 306,606 965,460 416,520 Revenue from direct investments -- 2,358,376 -- 10,553,137 Other 85 501 14,841 11,143 ------------------ ------------------ ------------------ ------------------ Total revenues 804,646 3,093,265 1,435,319 11,856,869 Cost of direct investments (105,982) (2,817,393) (105,982) (10,832,618) ------------------ ------------------ ------------------ ------------------ Gross profit 698,664 275,872 1,329,337 1,024,251 EXPENSES: Salaries expense 143,573 192,068 278,397 366,384 Facilities expense 23,090 23,090 46,179 47,262 Legal and accounting 60,287 34,559 105,614 65,319 Board of directors 109,529 73,781 196,328 134,273 Administrative expense 23,331 17,894 41,258 41,209 REO and non-recurring expenses 74,682 67,166 123,893 88,490 Depreciation 2,973 8,016 6,093 15,987 Provision for impairment of investments in real estate 2,266,161 -- 8,355,876 -- ------------------ ------------------ ------------------ ------------------ Total expenses 2,703,626 416,574 9,153,638 758,924 ------------------ ------------------ ------------------ ------------------ Operating income (loss) (2,004,962) (140,702) (7,824,301) 265,327 OTHER INCOME: Loss on sale of fixed assets (14,888) -- (14,888) -- Interest income 7,513 7,271 11,402 28,651 ------------------ ------------------ ------------------ ------------------ Total other income (7,375) 7,271 (3,486) 28,651 ------------------ ------------------ ------------------ ------------------ Net income (loss) before income taxes (2,012,337) (133,431) (7,827,787) 293,978 Provision for income taxes -- (8,921) (2,400) (11,321) ------------------ ------------------ ------------------ ------------------ Net income (loss) $ (2,012,337) $ (142,352) $ (7,830,187) $ 282,657 ================== ================== ================== ================== Basic and diluted net income (loss) per share $ (0.16) $ (0.01) $ (0.60) $ 0.02 ================== ================== ================== ================== Basic and diluted weighted average shares outstanding 12,537,504 14,266,108 12,952,901 14,429,481 ================== ================== ================== ==================
The accompanying notes are an integral part of these statements 4 BELLAVISTA CAPITAL, INC. CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY For the six months ended March 31, 2008 (unaudited)
Common Stock ------------------------------------ Accumulated Accumulated Shares Amount Dividends Deficit Total ----------------- ------------------ ------------------ ------------------ ------------------ Shareholders' equity at October 1, 2007 13,951,452 $198,812,376 $ (90,621,455) $ (55,957,378) $ 52,233,543 Common Stock repurchase (1,413,948) (2,574,388) -- -- (2,574,388) Consolidation of Investment -- -- -- 20,707 20,707 Net income -- -- -- (7,830,187) (7,830,187) ----------------- ------------------ ------------------ ------------------ ------------------ Shareholders' equity at March 31, 2008 12,537,504 $196,237,988 $ (90,621,455) $ (63,766,858) $ 41,849,675 ================= ================== ================== ================== ==================
The accompanying notes are an integral part of these statements 5 BELLAVISTA CAPITAL, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
Six Months Six Months Ended Ended March 31, March 31, 2008 2007 ------------------ ------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net (loss) income $ (7,830,187) $ 282,657 Adjustments to reconcile net loss to net cash provided by (used in) operations: Provision for impairment of investments in real estate 8,355,876 -- Depreciation 6,093 15,987 Loss on sale of fixed assets 14,888 -- Decrease in accounts payable and other liabilities (49,448) (464,628) Decrease (increase) in other assets, net 588,874 (181,409) ------------------ ------------------- Net cash provided by (used in) operating activities 1,086,096 (347,393 CASH FLOWS FROM INVESTING ACTIVITIES: Cash from sale of fixed assets 2,200 -- Proceeds from investments in real estate developments 7,304,479 18,195,282 Investments in real estate developments (8,001,357) (18,200,002) ------------------ ------------------- Net cash used in investing activities. (694,678) (4,720) CASH FLOWS FROM FINANCING ACTIVITIES: Repurchase of stock (2,574,388) (1,631,738) Borrowings under secured notes payable 3,020,005 1,200,000 Repayments of secured notes payable (853,000) (1,200,000) Payments under capital lease (2,672) -- ------------------ ------------------- Net cash used in financing activities (410,055) (1,631,738) ------------------ ------------------- Net decrease in cash and cash equivalents (18,637) (1,983,851) Beginning cash and cash equivalents 1,759,241 3,006,024 ------------------ ------------------- Ending cash and cash equivalents $ 1,740,604 $ 1,022,173 ================== =================== Cash paid for interest, net of amounts capitalized of $36,148 and $556, for the six months ended March 31, 2008 and 2007, respectively $ -- $ -- ================== ===================
The accompanying notes are an integral part of these statements 6 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, 2007 Financial Statements 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 and six months ended March 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, joint venture investments in real estate development entities, or direct investments in real estate projects. We are organized in a single operating segment for purposes of making operating decisions and assessing performance. BellaVista Capital, Inc. is the 100% shareholder of Sands Drive San Jose, Inc., a California corporation formed for the purpose of developing and selling residential real estate. Risk Factors General Economic Conditions in Lending Areas. Our business plan sought to diversify our investments throughout California and other states in the western 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 of the Company. 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 7 BELLAVISTA CAPITAL, INC. NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: Consolidation Policy The consolidated financial statements include the accounts of BellaVista Capital, Inc. its wholly owned subsidiary, Sands Drive San Jose, Inc., and 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. All intercompany accounts and transactions have been eliminated in consolidation. Prior to January 1, 2008 the Company used the equity method to report its investment in Cummings Park Associates, LLC. However, an amendment to its joint venture agreement in January 2008 now provides BellaVista the rights to over 50% of the development's profits, if any. In addition, BellaVista has contributed substantially all the equity capital to Cummings Park Associates, LLC. 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. 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 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 (ADC) residential real estate ("ADC loans"). 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; 8 BELLAVISTA CAPITAL, INC. NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) 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 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 an 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. Direct Investments in Real Estate Developments Direct Investments in Real Estate Developments represent development projects that the Company has obtained through foreclosure of its mortgage loans, and relate to real properties for which the Company has, by default, become the sole owner. We consolidate the assets and liabilities of these Direct 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 an 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. 9 BELLAVISTA CAPITAL, INC. NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) 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 March 31, 2008 we had cash totaling approximately $1.67 million in excess of the $100,000 limits provided by the Federal Deposit Insurance Corporation. 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 payments have been received, generally 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. 3. LOANS RECEIVABLE SECURED BY REAL ESTATE: 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. The following table summarizes our loans receivable secured by real estate by location as of March 31, 2008:
Amount Carrying Invested Impairments Amount In Default ------------------- ------------------ ------------------ ------------------- First trust deeds SF Bay Area $ 7,278,500 $ 165,000 $ 7,113,500 $ 1,130,000 California Central Valley 810,000 200,000 610,000 610,000 Other Western States 850,000 -- 850,000 -- ------------------- ------------------ ------------------ ------------------- Total first trust deeds 8,938,500 365,000 8,573,500 1,740,000 Subordinate loans SF Bay Area 1,893,777 -- 1,893,777 650,777 California Central Valley 150,000 -- 150,000 -- ------------------- ------------------ ------------------ ------------------- Total subordinate loans 2,043,777 -- 2,043,777 650,777 ------------------- ------------------ ------------------ ------------------- Total $ 10,982,277 $ 365,000 $ 10,617,277 $ 2,390,777 =================== ================== ================== ===================
The following table summarizes our loans receivable secured by real estate by location as of September 30, 2007:
Amount Carrying Invested Impairments Amount In Default ------------------- ------------------ ------------------ ------------------- SF Bay Area $ 9,353,000 $ -- $ 9,353,000 $ 600,000 California Central Valley 960,000 -- 960,000 -- Other Western States 850,000 -- 850,000 -- ------------------- ------------------ ------------------ ------------------- Total $ 11,163,000 $ -- $ 11,163,000 $ 600,000 =================== ================== ================== ===================
10 BELLAVISTA CAPITAL, INC. NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) 4. JOINT VENTURE INVESTMENTS IN REAL ESTATE DEVELOPMENTS: Joint Venture Investments in real estate developments consist of ADC Loans and joint ventures 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. For the three months and six months ended March 31, 2008 we recognized impairments totaling approximately $2.3 million and $8.4 million on our joint venture investments in real estate developments compared with $0 during the three months and six months ended March 31, 2007. The following table summarizes our joint venture investments in real estate developments by location as of March 31, 2008:
Remaining Amount Carrying Funding Invested Impairments Amount Obligation Description ------------------- ------------------ ------------------ ------------------- SF Bay Area $ 13,074,660 $ -- $ 13,124,196 $ 1,076,059 California Central Valley 10,643,969 4,668,897 6,015,958 94,042 Southern California 12,385,530 7,709,004 4,692,337 -- ------------------- ------------------ ------------------ ------------------- Total $ 36,104,159 $ 12,377,901 $ 23,832,491 $ 1,170,101 =================== ================== ================== ===================
The following table summarizes our joint venture investments in real estate developments by location as of September 30, 2007:
Remaining Amount Carrying Funding Invested Impairments Amount Obligation Description ------------------- ------------------ ------------------ ------------------- SF Bay Area $ 17,448,042 $ -- $ 17,497,206 $ 4,175,878 California Central Valley 11,697,253 2,303,348 9,429,120 1,283,679 Southern California 10,966,847 5,362,595 5,617,424 -- Other 1,157,425 -- 1,161,223 -- ------------------- ------------------ ------------------ ------------------- Total $ 41,269,567 $ 7,665,943 $ 33,704,973 $ 5,459,557 =================== ================== ================== ===================
5. DIRECT INVESTMENTS IN REAL ESTATE DEVELOPMENTS: Direct 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 Direct Investments in Real Estate Developments by location as of March 31, 2008: 11 BELLAVISTA CAPITAL, INC. NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
Amount Invested Recognized Carrying Costs to (net of payments) Impairment Amount Complete Description ------------------- ------------------ ------------------ ------------------- SF Bay Area $ 23,267,430 $ 2,766,518 $ 20,764,064 $ 2,390,607 ------------------- ------------------ ------------------ ------------------- Total $ 23,267,430 $ 2,766,518 $ 20,764,064 $ 2,390,607 =================== ================== ================== ===================
The following table summarizes our Direct Investments in Real Estate Developments by location as of September 30, 2007:
Amount Invested Recognized Carrying Costs to (net of payments) Impairment Amount Complete Description ------------------- ------------------ ------------------ ------------------- SF Bay Area $ 6,469,661 $ 1,492,052 $ 5,213,220 $ 50,000 ------------------- ------------------ ------------------ ------------------- Total $ 6,469,661 $ 1,492,052 $ 5,213,220 $ 50,000 =================== ================== ================== ===================
6. PROPERTY, PLANT AND EQUIPMENT: As of March 31, 2008 the Company disposed of furniture and equipment with a net book value of $17,088 and received $2,200 in cash. The $14,888 loss from the sale is included in the statements of operations. We had the following property, plant and equipment at March 31, 2008 and September 30, 2007: March 31, 2008 September 30, 2007 ------------------- ------------------ Computer Equipment $ 18,757 $ 88,110 Furniture -- 39,730 ------------------- ------------------ Total property, plant and equipment 18,757 127,840 Accumulated depreciation (9,718) (95,620) ------------------- ------------------ Property, plant and equipment, net $ 9,039 $ 32,220 =================== ================== 7. SECURED NOTES PAYABLE: The following table summarizes our secured notes payable at March 31, 2008 and September 30, 2007: March 31, 2008 September 30, 2007 ------------------- ------------------ Line of Credit $ 1,488,000 $ -- Construction loan 11,989,307 -- ------------------- ------------------ Total $ 13,477,307 $ -- =================== ================== The Line of Credit represents the outstanding balance as of March 31, 2008 and September 30, 2007 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 1.0% (6.25% and 8.25% at March 31, 2008 and September 30, 2007, respectively). Interest only payments are due monthly on the outstanding balance of the note, which matures on July 20, 2008. During the six months ended March 31, 2008 we borrowed $2.3 on the line and repaid $0.85 million compared with $1.2 million borrowed and repaid during the six months ended March 31, 2007. 12 BELLAVISTA CAPITAL, INC. NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) The Construction loan represents the outstanding balance as of March 31, 2008 and September 30, 2007 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 a project in which the Company is a member, is secured by the real property owned by the project and is guaranteed by our development partner. The Company does not have any obligation to repay the loan, however due to an amendment to our joint venture agreement in January 2008, the Company now has the right to receive over 50% of the project's profits, if any. In addition, the Company has provided substantially all the project's equity capital and has therefore consolidated the project's financial statements beginning January 1, 2008. Prior to January 1, 2008 the Company reported its investment in this project on the equity method. The loan bears interest at Prime (5.25% at March 31, 2008) and matures on June 20, 2008. Interest only payments are paid monthly from an interest reserve. As of March 31, 2008, there were $0.3 million remaining in interest reserve and $2.6 million available to be drawn for construction costs. 8. 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. During the period from April 30, 1999 through August 31, 2004 we sold 28,007,243 shares of Class A Convertible Preferred Stock, including sales made through our dividend reinvestment program. During this period of time we also repurchased 8,523,991 shares of our Preferred Stock through our various redemption programs. We have also offered and sold Series A and B promissory notes of varying amounts and maturities. All sales of stock were made under exemption from the registration requirements of the Securities Act of 1933 pursuant to Regulation D, Rule 506. All sales of stock and notes were to accredited investors, as defined in Regulation D, Rule 501. Appropriate legends were placed on each stock certificate, including a statement that all such shares are restricted stock for purposes of the Securities Act of 1933. On September 1, 2004 our outstanding shares of Preferred Stock totaling 19,483,252 shares, converted to Common Stock in accordance with the terms of the Preferred Stock. At the time of conversion, there were 100 shares of common stock issued and outstanding. From the date of conversion through September 30, 2007 we have repurchased 1,193,184 shares in connection with legal settlements and 4,338,716 shares of Common Stock under issuer tender offers at various prices so that at September 30, 2007 we had 13,951,452 shares of Common Stock outstanding. On October 17, 2007, the Company negotiated settlements and releases of certain claims against the Company and certain of its current and former officers and directors the terms of which provided that the shareholder tender 130,000 shares of his BellaVista Capital stock to the Company for no consideration and additionally provided that the Company would repurchase 25,966 shares of BellaVista stock from the shareholder at a price of $2.40 per share for a total payment of $62,318. On September 21, 2007 a group associated with MacKenzie Patterson Fuller, commenced a tender offer to purchase up to 750,000 shares at a price of $1.75 per share. The Company responded with its own tender offer to repurchase up to 1,500,000 shares at a price of $2.00 per share, and purchased a total of 1,249,969 shares at that price on November 27, 2007. In December 2007 the Company purchased 8,013 shares at $2.00 per share for a total payment of $16,026. On March 12, 2008 MacKenzie Patterson Fuller, commenced another tender offer to purchase up to 500,000 shares at a price of $1.25 per share. The Company responded on March 20, 2008 with its own tender offer to repurchase up to 750,000 shares at a price of $2.00 per share, and on April 25, 2008 purchased a total of 716,187 shares at that price for a total payment of $1,432,374. 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. 13 BELLAVISTA CAPITAL, INC. NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) 9. COMMITMENTS AND CONTINGENCIES: Operating leases As of March 31, 2008 the Company had no operating leases with initial or remaining non-cancelable lease terms in excess of one year. Litigation As of March 31, 2008, the Company was involved in the following litigation in which claims for damages would be material if the plaintiff prevailed: Robert Allen et al v BellaVista Capital, Inc. et al. A lawsuit by several shareholders seeking damages for alleged securities law violations was served on the Company in April 2006. The Company believes it has strong and viable defenses and plans to vigorously defend the allegations. 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 investments in real estate held for sale. 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. 14 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION General Our material financial transactions have been originating and holding a portfolio of investments in real estate developments, 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 or Plan of Operation," and elsewhere in this Form 10-QSB, 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" 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-QSB. 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-QSB, 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. As of March 31, 2008 the Company's available Federal net operating loss carry forwards were approximately $98.5 million. If these net operating loss carry forwards are fully utilized to offset future taxable income, at current Federal and California state tax rates, it would save the Company approximately $38.1 million in tax payments. After assessing the failures of Primecore's business model, new management and the Board of Directors formalized a plan for future business operation. The basic principles of the plan are as follows: o We will concentrate on $1 million to $6 million investments in residential and commercial real estate development; o We will target a 15% average return on our portfolio of investments by blending lower yield, more secure first trust deed investments with higher yield subordinated debt and equity investments; o We will focus on investments covering a broad range of price points, but with a majority of investments in housing priced close to the median sale prices for the areas in which we lend; o We will diversify the portfolio into other geographic areas, primarily in California; and 15 o We have established a rigorous process for investment underwriting and approval designed to mitigate our risk. 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. During the period from 2004 through 2006 management executed the company's new business plan, funding over $70 million in new investments. However, since August 2007 the residential real estate market has suffered a significant downturn and the Company has suffered additional impairments on these new investments. The current real estate market is best characterized by both uncertainty in residential real estate values and inventory absorption; thus the Company has announced plans to liquidate its current portfolio of real estate investments and begin a program designed to provide shareholder liquidity over the next 3 to 5 years. Any investments made during this period will typically be secured by first deeds of trust requiring monthly interest payments and have smaller average sizes, typically between $0.5 million and $2.0 million. RESULTS OF OPERATIONS We reported revenues from Loans Receivable Secured by Real Estate totaling $130,972 and $455,018 during the three months and six months ended March 31, 2008 compared with $427,782 and $876,069 during the three months and six months ended March 31, 2007. The decrease in revenues was due to (1) a decrease in the average amount invested in these loans during the comparable periods, an average of $10.2 million and $11.0 million during the three months and six months ended March 31, 2008 compared to $14.1 million and $14.7 million during the three months and six months ended March 31, 2007; and (2) a decline in our average return, 5.16% and 8.28% during the three months and six months ended March 31, 2008 compared to 12.08% and 11.91% during the three months and six months ended March 31, 2007, due to nonperforming loans in our portfolio. We reported revenues of $673,589 and $965,460 from our Joint Venture Investments in Real Estate Developments during the three months and six months ended March 31, 2008 compared with $306,606 and $416,520 during the three months and six months ended March 31, 2007. Our revenues are derived from the repayment of loans and collection of equity participations which are inherently unpredictable and will fluctuate depending on the amount and timing of payments we receive. During the three months and six months ended March 31, 2008 we reported revenues totaling $0 from our Direct Investments in Real Estate Developments compared with $2.4 million and $10.6 million during the three months and six months ended March 31, 2007. Our revenues decreased during the three months and six months ended March 31, 2008 compared with the three months and six months ended March 31, 2007 because we sold all the units in our 72-unit San Jose project before September 30, 2007. This was our only project classified as a Direct Investment in Real Estate Development selling units during the comparable time periods. For financial statement purposes we report revenues from our Joint Venture Investments only after we have collected it from the sale or repayment of the associated investment. These loans are a significant portion of our total investments. The Company believes that the rules governing the reporting of income from our joint venture investments make it difficult for readers to understand our economic performance. Specifically, our investments typically take two years or longer to complete and repay. During this time the interest or preferred return owed under the terms of our investment contracts is not reported as income for financial statement purposes. However, during the same period that we are charging, but not reporting this income, we are incurring expenses necessary to originate and service our investments and these expenses are reported during the period they are incurred. Expenses We group our operating expenses in three categories: recurring expenses; nonrecurring expenses and impairments. Recurring expenses are associated with the ongoing operations of our new investment strategy. Nonrecurring expenses are 16 legal costs and carrying costs of real estate owned associated with our previous management. During the three months and six months ended March 31, 2008 our recurring operating expenses were approximately $0.4 million and $0.7 million and were essentially unchanged compared with the three months and six months ended March 31, 2007. As a result of the downturn in the real estate market and significant uncertainties associated with future investments, we have discontinued funding any new investments and have reduced our staff. We plan to outsource the servicing and asset management areas of our operations and expect to have this fully accomplished by the end of the calendar year. During the three months ended and six months ended March 31, 2008 our nonrecurring operating expenses were $74,682 and $123,893 compared with $67,166 and $88,490 during the three months and six months ended March 31, 2007. The increase in nonrecurring operating expenses was due to completion of one of our Direct Investments in Real Estate Development and the carrying costs associated with it during our marketing period. We recorded impairment charges totaling $2.3 million and $8.4 million during the three months and six months ended March 31, 2008 compared with $0 during the three months and six months ended March 31, 2007. The impairments reported during the three months and six months ended March 31, 2008 result from declining real estate prices and longer than normal estimated marketing periods that have eroded value. Since December 31, 1999, all interest costs have been capitalized as a cost of our investments. Interest cost associated with our borrowings was $21,815 and $41,168 during the three months and six months ended March 31, 2008 compared with $556 and $0 during the three months and six months ended March 31, 2007. The increase was due to an increase in our outstanding debt during the three months and six months ended March 31, 2008. 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 and operating expenses. Sources of Cash As of March 31, 2008 our primary source of liquidity was the collection of our investments in real estate, a $3.0 million line of credit, $2.6 million undrawn on a construction loan and the cash we had 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 financial institutions 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 six months ended March 31, 2008 we received repayments, including income, totaling $7.3 million compared with $18.2 million during the six months ended March 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 March 31, 2008. The expected proceeds in the table are higher than our net realizable value estimates because they include our estimated costs to complete. Expected Proceeds ------------------------ Estimated investment completion: Complete $ 19,718,537 Six months ended 9/30/08 31,321,397 Year ended 9/30/09 8,555,341 Year ended 9/30/10 1,350,000 Year ended 9/30/11 800,000 ------------------------ Total $ 61,745,275 ======================== 17 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, 2008, without taking into account new investments that may be made during future periods:
Six months Year ended ended Total September 30, 2008 September 30, 2009 -------------------- -------------------- -------------------- Investment fundings $ 3,560,707 $ 3,083,536 $ 477,121 -------------------- -------------------- -------------------- Total $ 3,560,707 $ 3,083,536 $ 477,121 ==================== ==================== ====================
Investment fundings are the largest use of our cash. During the six months ended March 31, 2008 we invested $8.0 million in new and continuing development projects compared with $18.2 million during the six months ended March 31, 2008. In addition, during the six months ended March 31, 2008, we used $2.6 million to repurchase BellaVista common stock. At March 31, 2008 we estimated the costs to complete our direct investments in real estate developments plus the remaining funding obligation on our joint venture investments in real estate developments was $3.6 million. 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. Additionally, we expect the amount of actual investment fundings to be higher than our obligation existing at March 31, 2008 as we may continue to make and fund new investments in future periods. 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 to guide determinations of repurchase price for planned repurchases as well as Company repurchases in response to unsolicited tender offers. Stockholder Liquidity and Realizable Value of Investments In February 2008 the Company announced that it would liquidate its existing investments and begin to return cash to its shareholders in January 2009. The Company's shareholder liquidity program is expected to be in the form of stock repurchases by the Company at a price that will be determined based on the Company's estimated net realizable value of its assets less a discount reflecting the estimated collection risk of the portfolio's assets. 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.
March 31, 2008 September 30, 2007 ------------------- ------------------ Loans receivable secured by real estate $ 10,617,277 $ 11,163,000 Joint Venture investments in real estate developments 23,832,491 33,704,973 Direct investments in real estate developments 20,764,064 5,213,220 ------------------- ------------------ Total investments in real estate per US GAAP 55,213,832 50,081,193 Estimated collectible interest and preferred return not reportable per US GAAP 2,970,735 4,887,203 ------------------- ------------------ Estimated realizable value of investments in real estate $ 58,184,567 $ 54,968,396 =================== ==================
18 Net Realizable Value of Assets per Share The following calculation determines the estimated net realizable value per share of stock:
March 31, 2008 September 30, 2007 ------------------- ------------------ Cash $ 1,740,604 $ 1,759,241 Other assets 421,624 1,015,379 Estimated realizable value of investments in real estate 58,184,567 54,968,396 ------------------- ------------------ Total realizable assets 60,346,795 57,743,016 Accounts and notes payable (15,533,163) (597,313) ------------------- ------------------ Estimated net realizable assets 44,813,632 $ 57,145,703 Shares outstanding 12,537,504 13,951,452 ------------------- ------------------ Estimated net realizable assets per share $ 3.57 $ 4.10 =================== ==================
Our estimated net realizable assets per share were $3.57 at March 31, 2008, a decrease of $0.53 per share from the $4.10 we estimated at September 30, 2007. The decrease results from writedowns in estimated realizable value of some of our investments resulting from the declines in home prices for the real estate developments in which we have invested. Critical Accounting Policies and Estimates Management's Discussion and Analysis of Financial Condition or Plan 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 ADC loans are classified for financial reporting purposes as joint venture investments in real estate developments (see Note 4 to the financial statements). We have foreclosed on some ADC loans that are classified as direct investments in real estate developments (Note 5). Such investments include capitalized interest and 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 REO properties to decline in value in a future period. 19 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 (see Note 4 to the financial statements) and include amounts funded under the loan agreements and capitalized interest expense. 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 3A(T). CONTROLS AND PROCEDURES. Management is responsible for establishing and maintaining adequate internal control over financial reporting and for the assessment of the effectiveness of internal control over financial reporting. As defined by the SEC, internal control over financial reporting is a process designed by, or under the supervision of, the Company's principal executive and principal financial officers and effected by the Company's board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statement for external purposes in accordance with generally accepted accounting principles. The Company's internal control over financial reporting is supported by written policies and procedures that: (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the Company's assets; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles and that receipts and expenditures of the company are being made only in accordance with authorizations of the Company's management and directors; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company's assets that could have a material effect on the financial statements. Under the supervision of Michael Rider, the Company's Chief Executive Officer and Chief Financial Officer, we carried out an evaluation of the effectiveness of the Company's disclosure controls and procedures (as defined in Rules 13a - 15(e) and 15d - 15(e) under the Securities Exchange Act of 1934) as of March 31, 2008. Based on that evaluation, Mr. Rider has concluded that those controls and procedures were effective in making known to Company senior management, on a timely basis, the material information needed for the preparation of this Report on Form 10-QSB. There were no significant changes in the Company's internal controls or in other factors that could significantly affect those internal controls since the date of their evaluation. A significant deficiency is a control deficiency, or combination of control deficiencies, that adversely affects the company's ability to initiate, authorize, record, process, or report external financial data reliably in accordance with generally accepted accounting principles such that there is more than a remote likelihood that a misstatement of the company's annual or interim financial statements that is more than inconsequential will not be prevented or detected. Our auditors identified the following significant deficiency in connection with their audit of the 2007 and 2006 Financial Statements: there were not sufficient personnel in the accounting and finance department. Our auditors determined that these significant deficiencies, in the aggregate, do not constitute material weaknesses in the system of internal controls. The Company believes that the issue raised above regarding insufficient personnel resulted from the need to downsize staff as the Company eliminated underutilized staff. During 2007 the Company engaged an outside consultant to assist with the review of financial transactions and the preparation of financial statements. 20 On July 20, 2007 we filed an amended Form 10-KSB in order to restate our revenues from Direct Investments in Real Estate Developments on our consolidated statement of operations for the year ended September 30, 2006. In our previously filed statements we reported revenues from our direct investments in real estate developments net of selling costs and costs of sales. We should have reflected the gross amount of revenues and the associated selling costs and costs of sales on the consolidated statement of operations. There is no effect to net income or earnings per share resulting from this restatement. As of the date of such restatement, we have considered the need to restate revenues in evaluating our internal controls over financial reporting. We believe that the engagement of an outside financial consultant, as discussed above, to assist with the preparation of financial statements will provide adequate assurance that in the future our preparation of financial statements is in accordance with generally accepted accounting principles. No changes in our internal controls over financial reporting were made during the quarter ended March 31, 2008. 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 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS. (a) Not Applicable. (b) Not Applicable. (c) Repurchases of Equity Securities. Between October 1, 2007 and March 31, 2008, we repurchased 1,413,948 shares of our common stock. See the Note 8 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. ITEM 5. OTHER INFORMATION. Not applicable. ITEM 6. EXHIBITS. (a) Exhibits Exhibits submitted with this Form 10-QSB, 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 21 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 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 and 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 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the small business issuer has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Dated: June 18, 2008 /s/ MICHAEL RIDER ----------------- Michael Rider, President and Chief Financial Officer 22 EX-11 2 bellavista10qsbex11.txt EXHIBIT 11.1 STATEMENT RE COMPUTATION Exhibit 11.1 Statement regarding computation of per share earnings The numerators and denominators of basic and fully diluted earnings per share are as follows:
Three Months Ended March 31, Six Months Ended March 31, -------------------------------------- ------------------------------------- 2008 2007 2008 2007 ------------------- ------------------ ------------------ ------------------ Net income (loss) allocable to common shares (numerator) $ (2,012,337) $ (142,352) $ (7,830,187) $ 282,657 =================== ================== ================== ================== Shares used in the calculation (denominator) Weighted average shares outstanding 12,537,504 14,266,108 12,952,901 14,429,481 Effect of diluted stock options -- -- -- -- ------------------- ------------------ ------------------ ------------------ Diluted shares 12,537,504 14,266,108 12,952,901 14,429,481 =================== ================== ================== ================== Basic earnings per share $ (0.16) $ (0.01) $ (0.60) $ 0.02 =================== ================== ================== ================== Diluted earnings per share $ (0.16) $ (0.01) $ (0.60) $ 0.02 =================== ================== ================== ==================
EX-31 3 bellavista10qsbex311.txt EXHIBIT 31.1 CERTIFICATION Exhibit 31.1 CERTIFICATION REQUIRED BY RULE 13a-14(a) OR RULE 15d-14(a) I, Michael Rider, certify that: I have reviewed this Form 10-QSB of BellaVista Capital, Inc.; Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the small business issuer as of, and for, the periods presented in this report; The small business issuer's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the small business issuer and we have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the small business issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Evaluated the effectiveness of the small business issuer's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (c) Disclosed in this report any change in the small business issuer's internal control over financial reporting that occurred during the small business issuer's most recent fiscal quarter (the small business issuer's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the small business issuer's internal control over financial reporting; and The small business issuer's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the small business issuer's auditors and the audit committee of small business issuer's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the small business issuer's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer's internal control over financial reporting. /s/ MICHAEL RIDER --------------------------- Michael Rider, Chief Executive Officer and Chief Financial Officer June 18, 2008 EX-32 4 bellavista10qsbex321.txt EXHIBIT 32.1 CERTIFICATION Exhibit 32.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report on Form 10-QSB of BellaVista Capital, Inc. (the "Company") for the period ended March 31, 2008 as filed with the Securities and Exchange Commission on the date hereof (the Report"), and pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, I, Michael Rider, Chief Executive Officer and Chief Financial Officer of the Company, hereby certify that: 1. The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Corporation. /s/ MICHAEL RIDER - ------------------------ Michael Rider, Chief Executive Officer and Chief Financial Officer June 18, 2008 A signed original of this written statement required by Section 906 has been provided to the Company and will be retained to be furnished to the Securities and Exchange Commission or its staff upon request. -----END PRIVACY-ENHANCED MESSAGE-----