SCHEDULE
14C
INFORMATION
REQUIRED IN INFORMATION STATEMENT
SCHEDULE
14C INFORMATION
Information
Statement Pursuant to Section 14(c) of the
Securities
Exchange Act of 1934
(Amendment
No. )
Check
the
appropriate box:
ý Preliminary
Information
Statement ¨ Confidential,
for use of the Commission
Only (as permitted by Rule 14c-5(d)(2))
¨ Definitive
Information Statement
LANDBANK
GROUP, INC.
(Name
of
Registrant as Specified in Charter)
Payment
of Filing Fee (Check the appropriate box):
¨ No
fee required.
ý Fee
computed on table below per Exchange Act Rules 14c-5(g) and 0-11.
(1) Title
of each class of securities to which transaction applies:
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(2) Aggregate
number of securities to which transactions applies:
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(3)
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Per
unit price or other underlying value of transaction computed pursuant
to
Exchange Act Rule 0-11 (set forth the amount on which the filing
fee is
calculated and state how it was
determined):
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For
purposes of calculating the fee pursuant to Rule 0-11, the Registrant
valued the aggregate cash, securities and other property received
by the
Registrant in the disposition of substantially all of its assets
to be
equal to $800,000, i.e., the value realized to the Registrant by
transferring its operating subsidiary. The book value of
the operating subsidiary which is to be transferred was calculated
as
follows: $ 2.9m of assets as reflected on the Registrant's
balance sheet as of September 30, 2007 less $4.2m of liabilities
reflected
on that balance sheet plus $500,000 of liabilities of the operating
subsidiary which will be transferred to and become the obligation of
Registrant, which equals a book value of the operating subsidiary
(as
transferred) of
($800,000).
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(4)
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Proposed
maximum aggregate value of
transaction:
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$800,000
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(5)
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Total
fee paid:
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$160.00
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¨
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Fee
paid previously with preliminary
materials.
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¨
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Check
box if any part of the fee is offset as provided by Exchange Act
Rule
0-11(a)(2) and identify the filing for which the offsetting fee was
paid
previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its
filing.
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(1)
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Amount
previously paid:
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(2)
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Form,
Schedule or Registration Statement
No.:
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(3)
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Filing
Party:
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(4)
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Date
Filed:
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LANDBANK
GROUP, INC.
7030
Hayvenhurst Ave.
Van
Nuys, California 91406
To
the
Holders of Common Stock of
Landbank
Group, Inc.:
Landbank
Group, Inc., a Delaware corporation (“Company”), on November 16, 2007, obtained
written consent from stockholders holding a majority of the outstanding shares
of voting securities of the Company entitled to vote on the following
actions:
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1.
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To
approve an amendment to the Company’s Certificate of Incorporation, as
previously amended, to (i) change the name of the Company to Trist
Holdings, Inc. and (ii) increase the number of shares of authorized
common
stock from 100,000,000 to
2,000,000,000.
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2.
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To
approve the Securities Exchange Agreement dated as of November 1,
2007, by
and among the Company and Landbank Acquisition LLC, pursuant to which
the
Company would transfer substantially all of its assets, namely its
operating subsidiary, Landbank LLC, to Landbank Acquisition LLC,
its
majority stockholder.
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The
details of the foregoing actions and other important information are set forth
in the accompanying Information Statement. The Board of Directors of
the Company has unanimously approved the above actions.
Under
Section 228 of the Delaware General Corporation Law, action by stockholders
may
be taken without a meeting, without prior notice, by written consent of the
holders of outstanding capital stock having not less than the minimum number
of
votes that would be necessary to authorize the action at a meeting at which
all
shares entitled to vote thereon were present and voted. On that
basis, the stockholders holding a majority of the outstanding shares of capital
stock entitled to vote approved the foregoing actions. No other vote
or stockholder action is required. You are hereby being provided with
notice of the approval of the foregoing actions by less than unanimous written
consent of our stockholders.
WE
ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND US A
PROXY.
By
Order
of the Board of Directors,
Eric
Stoppenhagen,
Interim
President & Secretary
Van
Nuys,
California
[***],
2007
LANDBANK
GROUP, INC.
INFORMATION
STATEMENT
CONCERNING
CORPORATE ACTION AUTHORIZED BY WRITTEN
CONSENT
OF STOCKHOLDERS OWNING A MAJORITY
OF
SHARES OF VOTING SECURITIES ENTITLED TO VOTE THEREON
WE
ARE NOT ASKING YOU FOR A PROXY AND
YOU
ARE REQUESTED NOT TO SEND US A PROXY
SUMMARY
YOU
SHOULD READ THE FOLLOWING SUMMARY TOGETHER WITH THE MORE DETAILED INFORMATION
AND FINANCIAL STATEMENTS AND THE NOTES TO THOSE STATEMENTS APPEARING ELSEWHERE
IN THIS INFORMATION STATEMENT OR DELIVERED WITH THIS INFORMATION
STATEMENT.
THE
AMENDMENT
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Name
Change
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The
amendment to the Certificate of Incorporation of Landbank Group,
Inc., a
Delaware corporation (which we refer to as “the Company,” “we,” “us” or
“our”) provides for a change of the Company’s name to Trist Holdings,
Inc.
See
“NAME CHANGE AND INCREASE IN AUTHORIZED COMMON STOCK”.
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Increase
in Authorized Shares
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The
amendment also provides for an increase in the number of authorized
shares
of common stock from 100,000,000 to 2,000,000,000.
See
“NAME CHANGE AND INCREASE IN AUTHORIZED COMMON STOCK”.
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Recommendations
of the Board of Directors and Written Consent of the Majority of
the
Company’s Stockholders
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Our
Board of Directors unanimously approved the Amendment to the Company’s
Certificate of Incorporation, a copy of which is attached as Appendix
“A”
(the “Amendment”). The members of the Board of Directors
unanimously believe that the Amendment is fair to, and in the best
interests of, our stockholders. The Amendment was also approved
by a majority of the holders of our common stock by written consent
on
November 16, 2007.
See
also “NAME CHANGE AND INCREASE IN AUTHORIZED COMMON
STOCK.”
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THE
LLC TRANSFER
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The
Companies
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Landbank
Group, Inc.
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We
engage in business through our wholly-owned subsidiary, Landbank
LLC, a
California limited liability company (“LLC”). We make bulk
acquisitions of parcels of land, primarily through the real property
tax
lien foreclosure process. The bulk acquisitions are then divided
into
smaller parcels for resale (the “Business”).
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Landbank
Acquisition LLC
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Landbank
Acquisition LLC, a California limited liability company (“Investor”), was
formed in May 2007. As a result of a contribution of stock and
promissory notes by its members in September 2007, Investor became
the
majority stockholder of the Company. Investor holds demand
promissory notes due and payable by LLC in the aggregate principal
amount
of $3,032,657.47 (the “Notes”). At this time,
Investor’s only line of business has been to hold the shares of Company
common stock and the Notes. Investor’s principal executive
offices are located at 7030 Hayvenhurst Ave., Van Nuys, CA
91406.
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The
Securities Exchange Agreement
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The
Effect of the LLC Transfer
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On
November 1, 2007, we and Investor entered into the Securities Exchange
Agreement, a copy of which is attached hereto as Appendix
“B”. Pursuant to the Securities Exchange Agreement, we will
transfer, and Investor agreed to accept, at the closing of the
transactions contemplated by that agreement (the “Closing”), all of our
respective rights in and to the LLC and its Business. In this
Information Statement, we refer to the transfer transaction as the
“LLC
Transfer.”
See
also “THE SECURITIES EXCHANGE AGREEMENT – LLC Transfer.”
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Issuance
of Shares
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In
connection with the LLC Transfer, we will issue and deliver to Investor
79,311,256 shares of Company common stock at the Closing (the “Share
Issuance” and together with the LLC Transfer, the
“Transactions”). Following the Share Issuance, Investor will
own approximately 95% of our outstanding common stock. Investor
and the Company will enter into a Registration Rights Agreement,
a copy of
which is attached hereto as Appendix “C”, to provide Investor with certain
demand and piggyback registration rights with respect to the shares
received in the Share Issuance.
See
also “THE SECURITIES EXCHANGE AGREEMENT – Issuance of
Shares.”
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Debt
Assignment
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Prior
to the Closing, $500,000 of the outstanding Notes shall be
assigned
from
LLC as debtor to the Company as debtor (the “Assigned Debt”).
See
also “THE SECURITIES EXCHANGE AGREEMENT – Debt Assignment.”
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Assumption
of Liabilities
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Investor
has agreed that, upon the Closing, it shall assume all of the liabilities
of both the Company and the LLC incurred prior to the Closing, other
than
the Assigned Debt.
See
also “THE SECURITIES EXCHANGE AGREEMENT – Assumption of
Liabilities.”
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Indemnification
for Liabilities
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Each
of Investor and Family Products LLC, a member of Investor, has agreed
to
indemnify the Company for any losses arising from the Business related
to
events occurring prior to Closing and for all of the assumed
liabilities.
See
also “THE SECURITIES EXCHANGE AGREEMENT – Indemnification for
Liabilities.”
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Conditions
that Must Be Satisfied Prior to the Closing of the LLC
Transfer
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Completion
of the LLC Transfer is subject to various conditions (any of which
may be
waived by the party benefited by the condition), including among
them:
• the
truth and accuracy of the representations and warranties of Company
and of
Investor;
• performance
of all covenants by Company and Investor;
• approval
by the Company’s board and stockholders;
• delivery
of the Registration Rights Agreement;
• the
absence of any material adverse change in the Business; and
• the
amendment of the Company’s Certificate of Incorporation to change the name
of the Company and to increase the number of authorized shares of
Common
Stock from 100,000,000 to 2,000,000,000.
As
described elsewhere in this Information Statement, the Company’s Board of
Directors, and stockholders holding a majority of the issued and
outstanding shares of the Company’s common stock, have approved the
Securities Exchange Agreement (and the transactions contemplated
by that
agreement) and the contemplated amendment to the Company’s Certificate of
Incorporation.
See
also “THE SECURITIES EXCHANGE AGREEMENT – Conditions of the LLC
Transfer.”
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Termination
of the Securities Exchange Agreement
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The
Securities Exchange Agreement may be terminated, and the LLC Transfer
abandoned, at any time prior to the Closing by written mutual consent
of
us and Investor.
See
also “THE SECURITIES EXCHANGE AGREEMENT – Termination.”
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Effect
of Termination
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If
the Securities Exchange Agreement is terminated, it will become
void
and there shall be no liability or obligation on the part of any
party
hereto or their respective, subsidiaries, stockholders, directors,
officers, employees, agents or other representatives.
See
also “THE SECURITIES EXCHANGE AGREEMENT – Effect of
Termination.”
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Expenses
of the LLC Transfer
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Whether
or not the LLC Transfer is consummated, except as otherwise provided
in
the Securities Exchange Agreement, each party bears its own costs
and
expenses related to the LLC Transfer. However, in the event
that the Transactions are commenced, at or prior to the Closing,
the LLC
shall be responsible for such costs and expenses.
See
also “THE SECURITIES EXCHANGE AGREEMENT – Expenses.”
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Accounting
Treatment
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The
LLC Transfer is intended to be treated as a “disposition” in accordance
with generally accepted accounting principles in the United
States.
See
also “THE SECURITIES EXCHANGE AGREEMENT – Accounting
Treatment.”
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Federal
Income Tax Considerations
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There
are no income tax consequences to the Company stockholders as a result
of
the LLC Transfer.
See
also “THE SECURITIES EXCHANGE AGREEMENT – Material Federal Income Tax
Consequences.”
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Governing
Law and Regulatory Requirements
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Other
than with respect to complying with the general corporation law of
the
State of Delaware and the applicable federal and state securities
laws,
the Company is not aware of any governmental or regulatory requirements
with which it must comply in completing the LLC Transfer.
See
also “THE SECURITIES EXCHANGE AGREEMENT – Regulatory
Approvals.”
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Opinion
of Financial Advisors
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In
connection with the LLC Transfer, our Board of Directors received
an
opinion from Gemini Valuation Services, LLC or “GVS,” as to the fairness
of the LLC Transfer and the other transactions contemplated by the
Securities Exchange Agreement, as they may be viewed together, to
the
existing holders of our common stock, from a financial point of
view. The full text of GVS’s written opinion, dated October 23,
2007, is attached to this information statement as Appendix “D”. We
encourage you to read the opinion carefully in its entirety for a
description of the assumptions made, procedures followed, matters
considered and limitations on the review undertaken.
See
also
“OPINION OF FINANCIAL ADVISORS.”
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Recommendations
of the Board of Directors and Written Consent of the Majority of
the
Company’s Stockholders
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Our
Board of Directors unanimously approved the Securities Exchange Agreement
and the transactions contemplated thereby. The members of the
Board of Directors unanimously believe that the LLC Transfer and
the
transactions contemplated by the Securities Exchange Agreement, are
fair
to, and in the best interests of, our stockholders. The conclusion
of the
Board of Directors with respect to the LLC Transfer and the transactions
contemplated by the Securities Exchange Agreement was based upon
a number
of factors that are discussed in this Information
Statement. The Securities Exchange Agreement, and the
transactions contemplated thereby, including the LLC Transfer, was
also
approved by a majority of the holders of our common stock by written
consent on November 16, 2007.
See
also “BACKGROUND OF THE LLC TRANSFER.”
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General
Information
This
Information Statement is being furnished to the stockholders of Landbank Group,
Inc., a Delaware corporation (which we refer to in this Information Statement
as
“the Company,” “we,” “us” or “our”), to advise them of the corporate action
described herein, which has been authorized by the written consent of
stockholders owning a majority of the outstanding voting securities of the
Company entitled to vote thereon. This action is being taken in
accordance with the requirements of the Delaware General Corporation Law
(“DGCL”).
Our
executive offices are located at 7030 Hayvenhurst Ave., Van Nuys, California
91406, and our telephone number is (818) 464-1614. This Information
Statement will first be mailed to stockholders on or about [***], 2007 and
is
being furnished for informational purposes only.
Our
Board
of Directors has determined that the close of business on October 26, 2007
was
the record date (“Record Date”) for the stockholders entitled to notice about
the action (i) authorizing an amendment to our Certificate of Incorporation,
as
previously amended (the “Certificate of Incorporation”) to change the Company’s
name and increase the number of authorized shares of common stock from
100,000,000 to 2,000,000,000 and (ii) approving the Securities
Exchange Agreement dated November 1, 2007, between the Company and Landbank
Acquisition LLC (“Investor”), pursuant to which the Company would transfer to
Investor all of the membership interests of Landbank LLC, a California limited
liability company and wholly-owned subsidiary of the Company (“LLC”) which
comprises substantially all of the assets of the Company (together with (i),
the
“Actions”).
Under
Section 228 of the DGCL, any action required or permitted by the DGCL to be
taken at an annual or special meeting of stockholders of a Delaware corporation
may be taken without a meeting, without prior notice and without a vote, if
a
consent in writing, setting forth the action so taken, is signed by the holders
of outstanding stock having not less than the minimum number of votes that
would
be necessary to authorize or take such action at a meeting at which all shares
entitled to vote thereon were present and voted. Prompt notice of the
approval of the Actions must be given to those stockholders who have not
consented in writing to the action and who, if the action had been taken at
a
meeting, would otherwise have been entitled to notice of the
meeting.
On
November 16, 2007, 3 stockholders who own of record 8,204,681 shares of the
Company’s common stock, representing approximately 82.64% of the outstanding
shares of the Company’s common stock, executed and delivered to us a written
consent authorizing and approving the Actions.
Accordingly,
as the Actions have been approved by a majority of our outstanding voting
securities entitled to vote thereon, no vote or further action of our
stockholders is required to approve the Actions. You are hereby being
provided with notice of the approval of the Actions by less than unanimous
written consent of our stockholders. However,
under federal law, the Actions will not be effective until at least 20 days
after this Information Statement has first been sent to
stockholders. Stockholders do not have any dissenter or appraisal
rights in connection with the Actions.
On
October 26, 2007, our Board of Directors approved the Actions and authorized
our
officers to deliver this Information Statement.
Interest
of Persons in Matters to be Acted Upon
Except
as
discussed in this Information Statement, no director or officer of the Company
at any time since the beginning of the last fiscal year, or principal
stockholder, has a substantial or material interest in the favorable outcome
of
the Actions.
Change
of Control
On
September 20, 2007, Investor entered into a Contribution Agreement (the
“Contribution Agreement”) with its members, including Doug Gravink (“Gravink”)
and Gary Hewitt (“Hewitt”) and certain of their affiliated
entities. Pursuant to the Contribution Agreement, Gravink and Hewitt
each contributed 2,733,334 shares of the Company’s common stock (together, the
“Contributed Shares”) to Investor in exchange for membership interests in
Investor. Following the closing of that contribution transaction,
Investor held a total of 5,466,668 shares of Company common stock directly,
or
approximately 55.1% of our issued and outstanding shares. Gravink and
Hewitt each hold a 50% beneficial ownership interest in Investor through their
direct holdings, and indirect ownership of their affiliated entities which
are
members of Investor. Gravink served as our Chief Executive Officer
and Hewitt served as our President and Secretary until they each resigned on
September 24, 2007.
VOTING
SECURITIES
As
of the
date of the stockholder action, there were 9,928,664 shares of our common stock
issued and outstanding. We had no other class of stock outstanding as
of that date.
Each
share of our common stock is entitled to one vote on all matters submitted
to
the holders of our common stock for their approval. The consent of
the holders of a majority of the outstanding shares of our common stock was
necessary to authorize the Actions.
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The
following table sets forth certain information regarding our common stock
beneficially owned on November 6, 2007, for (i) each stockholder known to be
the
beneficial owner of more than 5% of our outstanding common stock, (ii) each
executive officer and director, and (iii) all executive officers and directors
as a group. In general, a person is deemed to be a “beneficial owner”
of a security if that person has or shares the power to vote or direct the
voting of such security, or the power to dispose or to direct the disposition
of
such security. A person is also deemed to be a beneficial owner of any
securities of which the person has the right to acquire beneficial ownership
within 60 days.
Unless
otherwise indicated, each person in the table will have sole voting and
investment power with respect to the shares shown. The following
table assumes a total of 9,928,664 shares of our common stock outstanding as
of
November 6, 2007.
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NAME
OF BENEFICIAL OWNER
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OWNERSHIP
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Executive
Officers and Directors
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Amount
of Beneficial Ownership
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Percent
of Beneficial Ownership
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Ray
Gaytan
11400
Olympic Blvd.
Los
Angeles, CA 90064
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4,680
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*
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All
Executive Officers and Directors as a Group (1 person)
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4,680
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*
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5%
Stockholders
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Landbank
Acquisition LLC
7030
Hayvenhurst Ave.
Van
Nuys, CA 91406
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5,466,668
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55.1%
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John
and Joyce Beck
7030
Hayvenhurst Ave.
Van
Nuys, CA 91406
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2,733,334
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27.5%
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*
Less than 1%.
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PROPOSAL
1: NAME CHANGE AND INCREASE IN AUTHORIZED COMMON
STOCK
We
are
currently authorized by our Certificate of Incorporation to issue 100,000,000
shares of common stock, $0.0001 par value per share. As of the date
of the stockholder action, there were 9,928,664 shares of our common stock
issued and outstanding.
In
connection with our proposed business plan (following the consummation of the
transactions contemplated by the Securities Exchange Agreement) of seeking
suitable candidates for a business combination, we will likely be required
to
issue shares of our common stock, options, awards and/or warrants in connection
with employee benefit and incentive plans and employment arrangements, financing
the future operations of the combined business, acquiring other businesses,
forming strategic partnerships and alliances, and/or stock dividends and stock
splits. No specific issuances are currently anticipated, however, to
the extent such issuances occur, they will result in dilution to our current
stockholders.
Accordingly,
our Board of Directors believes it is in our best interests and the best
interests of our stockholders to increase the number of authorized shares of
our
common stock to allow for the issuance of shares of our common stock or other
securities in connection with such potential issuances and such other purposes
as our Board of Directors determines.
The
increase in the authorized number of shares of our common stock will permit
our
Board of Directors to issue additional shares of our common stock without
further approval of our stockholders, and our Board of Directors does not intend
to seek stockholder approval prior to any issuance of the authorized capital
stock unless stockholder approval is required by applicable law or stock market
or exchange requirements. Our issuance of additional shares of common
stock may result in substantial dilution to our existing stockholders, and
such
issuances may not require stockholder approval.
Although
we from time to time review various transactions that could result in the
issuance of shares of our common stock, we have not reviewed any transaction
to
date, other than the Securities Exchange Agreement, that would result in an
issuance of shares of our common stock. However, upon the increase in
authorized shares of our common stock being effective, we may begin to review
transactions that may result in an issuance of shares of our common
stock.
We
do not
have in place provisions which may have an anti-takeover effect. The
increase in the authorized number of shares of our common stock did not result
from our knowledge of any specific effort to accumulate our securities or to
obtain control of us by means of a merger, tender offer, proxy solicitation
in
opposition to management or otherwise, and we did not take such action to
increase the authorized shares of our common stock to enable us to frustrate
any
efforts by another party to acquire a controlling interest or to seek
representation on our Board of Directors.
The
issuance of additional shares of our common stock may have a dilutive effect
on
earnings per share and on the equity and voting power of existing security
holders of our common stock. It may also adversely affect the market
price of our common stock. However, if additional shares are issued
in transactions whereby favorable business opportunities are provided which
allow us to pursue our business plans, the market price of our common stock
may
increase.
The
holders of our common stock are entitled to one vote for each share held of
record on all matters to be voted on by our stockholders.
The
holders of our common stock are entitled to receive dividends payable in cash,
property or in shares of capital stock, when, as, and if declared by our Board
of Directors out of assets legally available therefor. We have not
recently paid dividends on our common stock and do not intend to do so in the
near future. In the event of our liquidation, dissolution or winding
up, the holders of the shares of our common stock are entitled to share ratably
in all assets remaining available for distribution to them after payment of
liabilities and after provision has been made for each class of stock, if any,
having preference over our common stock. Holders of shares of our
common stock have no conversion, preemptive or other subscription rights, and
there are no redemption provisions applicable to our common stock.
On
October 26, 2007, our Board of Directors authorized the increase the authorized
number of shares of our common stock from 100,000,000 to
2,000,000,000. At that meeting the Board of Directors also authorized
the change of the Company’s name to Trist Holdings, Inc. On November
16, 2007, the amendment of our Certificate of Incorporation to reflect these
actions were also approved by written consent of holders representing
approximately 82.64% of the outstanding shares of our common stock. As such,
no
vote or further action of the stockholders of the Company is required to approve
the amendment of our Certificate of Incorporation to increase the authorized
shares of our common stock or change the Company’s name. You are
hereby being provided with notice of the approval of the Securities Exchange
Agreement and the Transactions, and the amendment to our Certificate of
Incorporation, by less than unanimous written consent of our stockholders.
A
form of the approved Certificate of Amendment to the Certificate of
Incorporation is attached to this Information Statement as Appendix
“A”.
We
intend
to file the Certificate of Amendment to the Certificate of Incorporation with
the Secretary of State of the State of Delaware promptly after the twentieth
day
after the date this Information Statement has first been sent to
stockholders.
PROPOSAL
2: THE SECURITIES EXCHANGE AGREEMENT AND LLC
TRANSFER
General
Our
Board
of Directors has unanimously approved the Securities Exchange Agreement entered
into on November 1, 2007 by and between us and Landbank Acquisition LLC
(“Investor”), our majority stockholder. Pursuant to the Securities
Exchange Agreement, we will transfer our membership interests in our operating
subsidiary, Landbank LLC (the “LLC”), to the Investor.
Background
of the Transfer of Landbank LLC
Acquisition
of Landbank, LLC and
Divestiture of Prior Operations
On
January 26, 2006, the Company
acquired 100% of the membership interests in LLC, in exchange for shares of
common stock of the Company. The exchange of shares for membership interests
was
treated as a reverse acquisition under the purchase method of accounting. The
shares delivered in connection with the acquisition were transferred by the
four
former principal stockholders of the Company to the members of LLC in exchange
for the Company receiving all of the ownership interests in LLC and $140,000
in
cash. Concurrently with the acquisition of LLC, the Company divested itself
of
its wholly owned operating subsidiary, iStorage Networks Group, Inc. ("iSNG").
The $140,000 in cash accompanied the divestiture of iSNG. The former members
of
LLC acquired approximately a 90% ownership interest in the Company. LLC, was
formed in December 2004 but did not commence operations until the second quarter
of 2005. It currently operates as a wholly owned subsidiary of the Company.
With
the divestiture of iSNG and the acquisition of LLC, the Company operates
exclusively in the real estate marketplace. It no longer operates its former
iStorage business.
Since
January 2006, the Company's sole
operations have consisted of the operations of LLC. We make bulk
acquisitions of parcels of land, primarily through the real property tax lien
foreclosure process. Such bulk acquisitions are divided into smaller parcels
for
resale (together with the prior sentence, the “Business”). We
consider various criteria in terms of its land acquisitions, which include
but
are not limited to, location, availability of utilities, proximity to water,
geographic desirability, and proximity of significant population centers. Our
current focus is in the Western, Southwestern, and East Coast regions of the
United States.
From
May to June 2007, our officers and
directors met on several occasions and maintained ongoing and lengthy
discussions with our legal and financial advisors, including our outside
corporate counsel, regarding all potential strategic alternatives that may
be
available to us, including potential transactions with our majority
stockholders, their affiliates or other third parties, including the potential
merger or acquisition of us by those holders, affiliates or third parties,
and/or their ability or interest to provide additional capital to or invest
in
our company, and alliances with entities willing to manage our assets, none
of
which provided a viable alternative at that time because these
parties:
|
·
|
did
not present us with any proposal for a potential
transaction;
|
|
·
|
subsequently
retracted their interest in us;
and/or
|
|
·
|
demonstrated
poor historical financial performance, or otherwise lacked established
business operations or successful business strategies, and therefore
did
not demonstrate to the satisfaction of the board and officers their
ability to obtain the necessary financing to complete a transaction
or to
manage our assets in a manner that would increase revenues or stockholder
value in general.
|
In
light of our continuing operating
losses and outstanding debt, our Board of Directors, together with management,
previously concluded that it had become necessary to redirect our company to
address a changing competitive landscape. Therefore, after extensive
discussion, the Board of Directors directed senior management to analyze and
review potential strategic transactions to raise capital, form strategic
partnerships and/or identify mutual alliances in order to preserve our viability
and to enhance stockholder value.
From
June through October 2007, the
Board of Directors and officers of the Company held informal meetings to discuss
the possibility of transferring the LLC to a new company to be formed by Messrs.
Doug Gravink and Gary Hewitt, who together held a majority of the Company’s
outstanding common stock and, through their affiliates, were the holders of
a
significant portion of the Company’s debt. At the meetings, the Board
of Directors and officers considered a number of relevant financial and
operational issues, including, among others:
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·
|
a
review of our results of operations and financial condition, including
our
recent operating losses;
|
|
·
|
our
lack of any other viable financing or strategic
transactions;
|
|
·
|
our
declining cash balances;
|
|
·
|
the
Board of Directors’ determination of the value of the LLC and its
Business;
|
|
·
|
the
Company and LLC’s outstanding obligations;
and
|
|
·
|
the
general economic downturn.
|
As
a result of these considerations,
the Board of Directors determined that a transaction with Messrs. Hewitt and
Gravink presented the best opportunity for us and was in the best interests
of
us and our stockholders. Therefore, the Board of Directors directed
senior management to finalize the transactions.
In
anticipation of a proposed transaction, the Company undertook several management
and director changes. On June 18, 2007, Stephen Weber resigned as a
director of the Company. Mr. Weber beneficially owns 200,000 shares
of the Company’s common stock, held of record by Investment Capital Researchers,
Inc. (“ICR”).
On
June
22, 2007, John Beck also resigned as a director of the Company. Mr.
Beck owns 2,733,334 shares of the Company’s common stock, held as joint tenants
with his wife. Additionally, Mr. Beck is a creditor of the LLC, which
has outstanding debts due and payable to Mr. Beck in the principal amount of
$32,400.00 as of November 6, 2007.
On
July
27, 2007, Gary Freeman and Lee Mendelson were both appointed as directors of
the
Company, while Doug Gravink (“Gravink”) and Gary Hewitt (“Hewitt”) each resigned
as directors of the Company.
On
August
10, 2007, we entered into option termination agreements with each holder of
options to purchase common stock of the Company, including Gravink, Hewitt,
John
Genesi, the Chief Financial Officer of the Company, and Ray Gaytan, a director
of the Company. Pursuant to the option termination agreements, all outstanding
option grants were terminated. At the time of termination, no portion
of any option grant had vested or been exercised.
On
September 20, 2007, Investor entered into a Contribution Agreement (the
“Contribution Agreement”) with its members, including Gravink and Hewitt and
certain of their affiliated entities. Pursuant to the Contribution
Agreement, Gravink and Hewitt each contributed 2,733,334 shares of the Company’s
common stock (together, the “Contributed Shares”) to Investor in exchange for
membership interests in Investor. Following the closing, Investor
held a total of 5,466,668 shares of Company common stock directly, or
approximately 55.1% of our issued and outstanding shares. Gravink and
Hewitt each hold a 50% beneficial ownership interest in Investor through both
direct and indirect ownership via their affiliates. Gravink served as
our Chief Executive Officer and Hewitt served as our President and Secretary
until they each resigned on September 24, 2007.
Additionally,
as part of the Contribution Agreement certain of Messrs. Gravink and Hewitt’s
affiliates contributed promissory notes in the aggregate principal amount of
$3,032,657.47 to Investor (the “Notes”). Such promissory notes were
issued by LLC, accrue interest at a rate of 8% per annum and are payable on
demand of the holder. Investor has not engaged in any line of
business other than to hold the Contributed Shares and the Notes and has no
other assets or liabilities other than its obligations pursuant to the
Securities Exchange Agreement executed on November 1, 2007 and the expenses
incurred in connection with each of the Contribution Agreement and the
Securities Exchange Agreement.
On
September 24, 2007, we appointed Eric Stoppenhagen as our Interim President
and
Secretary. On September 27, 2007 we entered into a Consulting,
Confidentiality and Proprietary Rights Agreement with Venor, Inc. (“Venor”), a
company owned by Mr. Stoppenhagen. Under the terms of the consulting
agreement, Venor will perform certain consulting services for the Company with
respect to, among other things, the provision of executive services (including,
without limitation, the services of Mr. Eric Stoppenhagen, the Company's Interim
President and Secretary) for a period of six months.
In
September and October of 2007, our legal counsel negotiated the proposed
Securities Exchange Agreement with Investor.
In
September 2007, we retained Gemini Valuation Services LLC (“GVS”) to render an
opinion to the Board of Directors that the proposed transactions (“Proposed
Transactions”) viewed together, are fair, from a financial point of view, to the
holders of our Common Stock. The Proposed Transactions call for (1) the Company
to transfer ownership of LLC to Investor, (2) the Company to issue new shares
to
Investor in an amount that will increase Investor’s current equity holdings in
Company of approximately fifty-five percent (55%) to approximately ninety-five
percent (95%), (3) Investor to provide full indemnity to Company for LLC’s prior
operations and liabilities, (4) LLC to assign $500,000 in debt to Company owed
to Investor, (5) LLC to retain approximately $500,000 in debt owed to third
parties and approximately $2.5 million in debt owed to Investor, and (6) the
Company to seek to be acquired as a public shell subsequent to the
transaction.
The
Board
of Directors retained GVS based upon GVS’s experience in the valuation of
businesses and their securities in connection with recapitalizations and similar
transactions. GVS is a recognized valuation firm that is continually
engaged in providing financial advisory services in connection with mergers
and
acquisitions, leveraged buyouts, business and securities valuations for a
variety of regulatory and planning purposes, recapitalizations, financial
restructurings, and private placements of debt and equity
securities.
In
October 2007, GVS advised the Board of Directors in a draft written opinion
that, subject to customary limitations all of which are identified in GVS’s
written opinion delivered to us and attached to this Information Statement
as
Appendix “D,” (i) the Proposed Transactions, viewed together, are fair, from a
financial point of view, to the holders of our Common Stock.
On
October 23, 2007, GVS delivered its written opinion to us.
On
October 26, 2007, the Board of Directors held a special meeting to consider
the
LLC Transfer, the Securities Exchange Agreement and the transactions
contemplated thereby. In light of the Board of Directors’ earlier
considerations, and considering our continuing losses, our expected losses
in
2007 and 2008 and our current cash position, our Board of Directors determined
that it would be in our best interests and in the best interests of our
stockholders to pursue a transaction that would allow us to exit the real estate
industry at a fair valuation, and provide us with the ability to successfully
operate new businesses with significantly greater growth prospects than those
we
can reasonably expect from our current operations. As such, after
further negotiations and consultation with its legal and financial advisors,
the
Board of Directors approved the execution of the Securities Exchange Agreement
subject to stockholder approval.
On
November 1, 2007, we and Investor entered into the Securities Exchange Agreement
which reflects the Proposed Transactions.
The
Securities Exchange Agreement
The
following brief description of the terms of the Securities Exchange Agreement
contains summaries of certain provisions of the Securities Exchange
Agreement. This summary description contains all of the material
terms of the Securities Exchange Agreement, however, this summary does not
purport to replace the actual terms of that agreement, is not complete, and
is
qualified in its entirety by the full text of the Securities Exchange Agreement,
which is incorporated into this Information Statement by reference and is
attached as Appendix “B”.
LLC
Transfer. We will transfer to Investor, and Investor agrees to
acquire from the Company, 100% of the membership interests of the LLC at the
Closing (the “LLC Transfer”). The LLC Transfer is intended to
transfer all of the properties, rights, interests and other tangible and
intangible assets necessary to enable the Investor to conduct the business
of
the Company in the manner in which such business is currently being conducted,
and has been conducted prior to the Closing; provided, however, that the Company
shall retain $5,000.00 in its bank account following the Closing.
Issuance
of Shares. We will issue and deliver to Investor, and Investor agrees to
acquire from the Company, 79,311,256 shares of Common Stock at the Closing
(the
“Share Issuance” and together with the LLC Transfer, the
“Transactions”). Following the Share Issuance, Investor will own
approximately 95% of our outstanding common stock. Investor and the
Company will enter into a Registration Rights Agreement between them at the
Closing (the “Registration Rights Agreement”) pursuant to which the Investor
will receive certain demand and piggyback registration rights with respect
to
the shares received in the Share Issuance.
Debt
Assignment. Prior to the Closing, $500,000 of the outstanding
Notes shall be assigned from LLC as debtor to the Company as debtor (the
“Assigned Debt”).
Assumption
of
Liabilities. Investor has agreed that, upon the Closing, it
shall assume all of the liabilities of both the Company and the LLC incurred
prior to the Closing other than the Assigned Debt.
Indemnification
for Liabilities.
Subject to the terms and conditions contained in the Securities Exchange
Agreement, each of Investor and Family Products LLC, a member of Investor,
has
agreed to indemnify the Company for any losses or damages it may incur related
to or arising from the operation of the business or assets of the LLC prior
to
or following the Closing, other than the Assigned Debt, and any of the
liabilities assumed by Investor at Closing.
Effective
Time. The LLC Transfer and Share Issuance will occur on the date
and at the time of the Closing. It is anticipated that the effective
time of the LLC Transfer and issuance of the Shares will occur on or about
[***20 days from mailing***].
Representations
and Warranties. These provisions of the Securities Exchange
Agreement contain customary representations and warranties relating to, among
other things:
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·
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organization
and similar corporate matters;
|
|
·
|
authorization,
execution, delivery, performance and enforceability of the Securities
Exchange Agreement and related
matters;
|
|
·
|
ownership
of the properties, rights, interests and other tangible and intangible
assets necessary to conduct the Business as currently conducted;
and
|
|
·
|
issuance
of the Shares and their exemption from registration under the Securities
Act.
|
Covenants. Company
agreed to seek stockholder approval of the LLC Transfer by special meeting
of
stockholders. Company and Investor each further agreed to use
reasonable best efforts to cause to occur all conditions within its control
in
order to consummate the LLC Transfer. Under the Securities Exchange
Agreement, the Company further agreed, among other things, to prepare this
Information Statement. A majority of the Company’s stockholders,
including Investor, submitted their written consent of stockholders on November
16, 2007.
Conditions
of the LLC Transfer. The respective obligations of the Company
and Investor to consummate the Transactions are subject to certain conditions,
or waiver of those conditions including, without limitation:
|
·
|
the
truth and accuracy of the representations and warranties of Company
and of
Investor;
|
|
·
|
performance
of all covenants by Company and
Investor;
|
|
·
|
approval
by the Company’s board and
stockholders;
|
|
·
|
delivery
of the Registration Rights
Agreement;
|
|
·
|
the
absence of any material adverse change in the Business;
and
|
|
·
|
the
amendment of the Company’s Certificate of Incorporation to change the name
of the Company and to increase the number of authorized shares of
Common
Stock from 100,000,000 to
2,000,000,000.
|
Termination. The
Securities Exchange Agreement may be terminated, and the Transactions abandoned,
at any time prior to the Closing by written mutual consent of the Company and
Investor.
Effect
of
Termination. If the Securities Exchange Agreement is
terminated, it will
become void and there shall be no liability or obligation on the part of any
party hereto or their respective, subsidiaries, stockholders, directors,
officers, employees, agents or other representatives.
Expenses. Company
and Investor will each pay all of their own costs and expenses incurred in
connection with the transactions contemplated by the Securities Exchange
Agreement, including, without limitation, all fees and expenses of attorneys,
accountants and financial advisors. However, in the event that the
Transactions are commenced, at or prior to the Closing, the LLC will be required
to pay all expenses, fees and other amounts incurred by the Company or the
LLC
with respect to the Securities Exchange Agreement and the
Transactions.
Assignability. Prior
to
closing, neither we nor Investor may assign any of our respective rights or
delegate our respective duties under the Securities Exchange Agreement without
the prior written consent of the other.
Accounting
Treatment
The
LLC Transfer is intended to be
treated as a “disposition” in accordance with accounting principles generally
accepted in the United States.
Material
Federal Income Tax Consequences of the LLC Transfer to Company
Stockholders
There
are
no tax consequences to the Company’s stockholders as a result of the
Transactions.
Regulatory
Approvals
The
Company is not aware of any material governmental or regulatory approval
required for completion of the Transactions, other than compliance with
applicable corporate law of the State of Delaware and the applicable federal
and
state securities laws with respect to the Share Issuance.
Financial
Statement Information
Our
Annual Report on Form 10-KSB for
the year ended December 31, 2006, originally filed with the Securities and
Exchange Commission (“SEC”) on April 2, 2007, is attached to this Information
Statement as Appendix “E,” and our Quarterly Reports on Form 10-QSB for the
quarters ended March 31, 2007, June 30, 2007 and September 30, 2007, are
attached to this Information Statement as Appendix “F.” Each of these
appendices is incorporated herein by this reference. We refer you to,
and encourage you to review, the financial statements, the management’s
discussion and analysis of financial condition and results of operations, and
the qualitative and quantitative disclosures about market risk identified in
each of the enclosed reports, as applicable.
Investor
has not engaged in any line of
business other than to hold the Contributed Shares and the Notes and has no
other assets or liabilities other than its obligations pursuant to the
Securities Exchange Agreement executed on November 1, 2007 and the expenses
incurred in connection with each of the Contribution Agreement and the
Securities Exchange Agreement. Investor has no prepared financial
statements or related disclosures.
Vote
Required to Approve the Transactions
The
approval of the Securities Exchange Agreement and the Transactions, and the
amendment to our Certificate of Incorporation, required the affirmative vote
of
a majority of the shares of voting securities outstanding and entitled to
vote. On November 16, 2007, the action to approve the foregoing was
approved by written consent of holders representing approximately 82.64% of
the
outstanding shares of our common stock. As such, no vote or further
action of the stockholders of the Company is required. You are hereby
being provided with notice of the approval of the Securities Exchange Agreement
and the Transactions, and the amendment to our Certificate of Incorporation,
by
less than unanimous written consent of our stockholders.
OPINION
OF FINANCIAL ADVISORS
We
retained Gemini Valuation Services LLC (“GVS”) to render an opinion to the Board
of Directors that the proposed transactions (“Proposed Transactions”) viewed
together, are fair, from a financial point of view, to the holders of our Common
Stock. The Proposed Transactions call for (1) the Company to transfer ownership
of LLC to Investor, (2) the Company to issue new shares to Investor in an amount
that will increase Investor’s current equity holdings in Company of
approximately fifty-five percent (55%) to approximately ninety-five percent
(95%), (3) Investor to provide full indemnity to Company for LLC’s prior
operations and liabilities, (4) LLC to assign $500,000 in debt to Company owed
to Investor, (5) LLC to retain approximately $500,000 in debt owed to third
parties and approximately $2.5 million in debt owed to Investor, and (6) the
Company to seek to be acquired as a public shell subsequent to the
transaction.
The
preparation of a fairness opinion is a complex process and is not necessarily
susceptible to partial analysis or summary description. The following
is a brief summary and general description of the valuation methodologies
utilized by GVS. The summary contains all of the material portions of
the opinion but does not purport to be a complete statement of the analyses
and
procedures applied, the judgments made or the conclusion reached by GVS or
a
complete description of its presentation. GVS believes, and so
advised the Board of Directors, that its analyses must be considered as a whole
and that selecting portions of its analyses and of the factors considered by
it,
without considering all factors and analyses, could create an incomplete view
of
the process underlying its analyses and opinions.
The
Board
of Directors retained GVS based upon GVS’s experience in the valuation of
businesses and their securities in connection with recapitalizations and similar
transactions. GVS is a recognized valuation firm that is continually
engaged in providing financial advisory services in connection with mergers
and
acquisitions, leveraged buyouts, business and securities valuations for a
variety of regulatory and planning purposes, recapitalizations, financial
restructurings, and private placements of debt and equity
securities. As compensation to GVS for its services in connection
with the Proposed Transactions, we agreed to pay GVS an aggregate fee of $40,000
in addition to GVS’s related expenses. No portion of GVS’s fee is
contingent upon the successful completion of the Proposed Transactions, or
any
other related transaction, or the conclusions reached in the GVS
opinion. No limitations were imposed by the Board of Directors on GVS
with respect to the investigations made or procedures followed by them in
rendering its opinion.
In
October 2007, GVS advised the Board
of Directors, and on October 23, 2007, delivered its written opinion to the
effect that, as of the date of such opinion, subject to the limitations
described therein, the Proposed Transactions, viewed together, are fair, from
a
financial point of view, to the holders of our common stock.
The
full
text of GVS’s opinion, which describes among other things the assumptions made,
general procedures followed, matters considered and limitations on the review
undertaken by GVS in rendering its opinion is attached to this Information
Statement as Appendix “D” and is incorporated herein by
reference. The summary of the GVS opinion in this information
statement is qualified in its entirety by reference to the full text of the
GVS
opinion. You are urged to read GVS’s opinion in its
entirety.
The
GVS
opinion does not address our underlying business decision to effect the Proposed
Transactions and does not constitute a recommendation to any of our stockholders
as to whether they should accept the related exchange under the Proposed
Transactions. The GVS opinion does not address the relative merits of
the Proposed Transactions as compared to any alternative business transaction
that might be available to Company stockholders, nor does it address the
underlying business decision of the Company to engage in the Proposed
Transactions. We did not ask GVS to consider, and the GVS opinion does not
address, the tax consequences of the Proposed Transactions to any particular
stockholder of the Company.
In
arriving at its fairness opinion,
among other things, GVS did the following:
|
1.
|
reviewed
and analyzed the terms of the Proposed
Transaction;
|
|
2.
|
reviewed
and analyzed available historical business and financial information
relating to Landbank, including (i) audited and unaudited financial
statements for the fiscal years ended December 31, 2005 and December
31,
2006;
|
|
3.
|
reviewed
and analyzed the inventory of properties currently owned by
Landbank;
|
|
4.
|
reviewed
and analyzed publicly-traded companies reasonably comparable to
Landbank;
|
|
5.
|
reviewed
and analyzed the industry in which Landbank
operates;
|
|
6.
|
conversed
with the management team of Landbank regarding, amongst other things,
the
history of the company, the Proposed Transaction, and the outlook
of the
Company; and
|
|
7.
|
conducted
such other studies, analyses and inquiries as it deemed appropriate
for
purposes of its opinion.
|
Analysis
GVS
used several methodologies to
assess the fairness, from a financial point of view, of the consideration to
be
received by us in connection with the Proposed Transactions as they may be
viewed together. These methodologies provided an estimate as to the
aggregate enterprise value of the Business, and of our operations on a
going-forward basis. The following is a summary of the material
financial analyses used by GVS in connection with providing its
opinion. This summary is qualified in its entirety by reference to
the full text of such opinion, which is attached as Appendix “D” to this
Information Statement. You are urged to read the full text of the GVS
opinion carefully and in its entirety.
Income
Approach
GVS
used
the income approach valuation methodology in order to determine the estimated
market value of the Business. The analyses required studies of the
overall market, economic and industry conditions in which the Business operates
and the historical operating results of the Business. To analyze the
cash flow potential of the Company’s current real estate holdings, GVS conducted
three separate sensitivity analyses utilizing different variables with certain
assumptions held constant. Under each scenario, the Company had no
equity value after consideration of debt servicing expenses.
Market
Analysis
GVS
also
conducted a market analysis to develop an indication of value for the Company;
however, the market is highly fragmented and is composed primarily of privately
held regional players; accordingly, GVS identified only one public comparable
company. Due to the limited and negative financial results, as well
as the lack of reasonable trading metrics, GVS was unable to utilize that
comparable company to develop valuation metrics for the Company.
Stock
Performance
Additionally,
GVS analyzed the Company’s stock performance to develop indications of value;
but an indication of value could not be accurately determined due the stock’s
highly volatile prices, ranging from $0.01 to $0.20, coupled with minimal and
inconsistent trading volumes; within the past thirty days the Company’s stock
volume averaged 1,609 shares per day while trading only 31% of the total trading
days; this is not a new trend as the stock’s volume averaged 624 shares per day
while trading only 13% of the total trading days over the past twelve
months.
Sale
of a Public Shell
GVS
also
analyzed the value the Company’s stockholders stood to gain post-transaction if
the Company was sold as a public shell. In a situation where the
Company is sold as a public shell, the equity stockholders could receive cash
as
well as retain some equity; based on average prices this could equate to $12,500
in cash and 0.38% in equity retention. Although the cash proceeds and
the equity retention in the public shell are of minimal value, the value is
nevertheless greater than equity holders current value of zero.
Conclusion
GVS’s
opinion is based on the
conditions and prospects, financial and otherwise, of the Company as it was
been
represented to them as of the date of their opinion or as they were reflected
in
the materials and discussions described above. In rendering its
opinion, GVS has assumed and relied upon, without assuming any responsibility
for or independently verifying, the accuracy and completeness of all information
supplied or otherwise made available to them by us. GVS further relied upon
the
assurances of representatives of our management that they are unaware of any
facts that would make the information provided to GVS incomplete or misleading
in any material respect. With respect to projected financial and operating
data,
GVS assumed that they have been reasonably prepared on bases reflecting the
best
currently available estimates and judgments of the managements and staffs of
the
Company, respectively, relating to the future financial and operational
performance of the Company. GVS did not make an independent evaluation or
appraisal of the assets or liabilities of the Company. In addition,
GVS did not assume any obligation to conduct, nor did GVS conduct any physical
inspection of our properties or facilities. GVS also assumed that the Proposed
Transactions will be consummated in accordance with the stated terms without
waiver of any of the conditions precedent to the Proposed Transactions. GVS
did
not participate in the discussions concerning the Proposed Transactions among
the Company and its representatives.
The
summary set forth above describes
the material points of more detailed analyses performed by GVS in arriving
at
its fairness opinion. The preparation of a fairness opinion is a
complex analytical process involving various determinations as to the most
appropriate and relevant methods of financial analysis and application of those
methods to the particular circumstances and is therefore not readily susceptible
to summary description. In arriving at its opinion, GVS made
qualitative judgments as to the significance and relevance of each analysis
and
factor. Accordingly, GVS believes that its analyses and summary set
forth herein must be considered as a whole and that selecting portions of its
analyses, without considering all analyses and factors, or portions of this
summary, could create an incomplete view of the processes underlying the
analyses set forth in GVS’s fairness opinion. In its analysis, GVS
made numerous assumptions with respect to us, the Business, the Proposed
Transactions, industry performance, general business, economic, market and
financial conditions and other matters, many of which are beyond the control
of
the respective entities. The estimates contained in such analyses are
not necessarily indicative of actual values or predictive of future results
or
values, which may be more or less favorable than suggested by such analyses.
Additionally, analyses relating to the value of businesses or securities are
not
appraisals. Accordingly, such analyses and estimates are inherently subject
to
substantial uncertainty.
AVAILABLE
INFORMATION
Please
read all the sections of this Information Statement carefully. We are
subject to the informational requirements of the Securities Exchange Act of
1934, as amended (“Exchange Act”) and in accordance therewith, file reports,
Information Statements and other information with the
Commission. These reports, Information Statements and other
information filed by us with the SEC may be inspected without charge at the
public reference section of the SEC at Judiciary Plaza, 100 F Street, N.E.,
Washington, DC 20549. Copies of this material also may be obtained
from the SEC at prescribed rates. The SEC also maintains a website
that contains reports, proxy and information statements and other information
regarding public companies that file reports with the SEC. Copies of
these materials may be obtained from the SEC’s website at
http://www.sec.gov.
INCORPORATION
OF INFORMATION BY REFERENCE
The
following documents, which are on file with the Commission (Exchange Act File
No. 000-52315) are incorporated in this Information Statement by reference
and
made a part hereof:
|
(i)
|
Annual
Report on Form 10-KSB, for the fiscal year ended December 31,
2006.
|
|
(ii)
|
Quarterly
Reports on Form 10-QSB for the quarters ended March 31, 2007, June
30,
2007 and September 30, 2007.
|
|
(iii)
|
Current
Reports on Form 8-K filed November 21, 2007, November 7, 2007, September
28, 2007, September 18, 2007, August 16, 2007, July 30, 2007 and
June 22,
2007.
|
All
documents filed by us with the Commission pursuant to Section 13(a), 13(c),
14
or 15(d) of the Exchange Act after the date of this Information Statement and
prior to the effective date hereof shall be deemed to be incorporated by
reference in this Information Statement and shall be a part hereof from the
date
of filing of such documents. Any statement contained in a document
incorporated by reference in this Information Statement and filed with the
Commission prior to the date of this Information Statement shall be deemed
to be
modified or superseded for purposes of this Information Statement to the extent
that a statement contained herein, or in any other subsequently filed document
which is deemed to be incorporated by reference herein, modifies or supersedes
such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of
this
Information Statement.
The
Company will provide without charge to each person to whom this Information
Statement is delivered, upon written or oral request of such person, a copy
of
any or all of the foregoing documents incorporated herein by reference (other
than exhibits to such documents, unless such exhibits are specifically
incorporated by reference into such documents). Written requests
should be directed to us at 7030 Hayvenhurst Ave., Van Nuys, California 91406.
Telephone requests should be directed to us at (949) 903-0468.
LANDBANK
GROUP, INC.
Van
Nuys,
California
[***],
2007
APPENDIX
A
CERTIFICATE
OF AMENDMENT TO THE
CERTIFICATE
OF INCORPORATION OF
LANDBANK
GROUP, INC.
Landbank
Group, Inc., a corporation organized and existing under and by virtue of the
General Corporation Law of the State of Delaware (the “Corporation”), does
hereby certify that:
I. The
Board of Directors of the Corporation, at a meeting duly held on October 26,
2007, has duly adopted resolutions proposing and declaring advisable the
following amendments to the Corporation’s Certificate of Incorporation
(together, the “Amendment”):
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a.
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Article
One is hereby amended to read as
follows:
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“The
name of the Corporation is Trist Holdings,
Inc.”
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b. Article
Five is hereby amended to read as follows:
“The
Corporation shall be authorized to issue Two Billion (2,000,000,000) shares
of
common stock, par value $0.0001 per share.”
II. That
thereafter, a majority of the outstanding stock entitled to vote thereon, acting
by written consent in accordance with Section 228 of the General Corporation
Law
of the State of Delaware, approved the amendment.
III. That
said amendment was duly adopted in accordance with the provisions of Section
242
of the General Corporation Law of the State of Delaware.
IN
WITNESS WHEREOF, the Corporation has caused this certificate to be signed by
Eric Stoppenhagen, its Interim President & Secretary, this ___ day of [***],
2007.
By:
Name: Eric
Stoppenhagen
Title:
Interim President & Secretary
APPENDIX
B
SECURITIES
EXCHANGE AGREEMENT
THIS
SECURITIES EXCHANGE AGREEMENT (this “Agreement”) is
made and entered into as of this 1st day of November, 2007, by and among
Landbank Group, Inc., a Delaware corporation (the
“Company”), located at 7030 Hayvenhurst Ave., Van
Nuys, CA 91406-3801, Landbank Acquisition LLC, a California limited liability
company (the “Investor”), located at 7030 Hayvenhurst
Ave., Van Nuys, CA 91406-3801, and Family Products LLC, a California limited
liability company, located at 7030 Hayvenhurst Ave., Van Nuys, CA 91406-3801
(“FPLLC”) (for purposes of providing indemnification
pursuant to Section 8 and the acknowledgement of Section 9.13
only). Each of the Company and Investor are referred to individually
herein as a “Party,” and collectively, as the
“Parties.”
RECITALS:
A. Landbank
LLC, a wholly-owned subsidiary of the Company (the
“LLC”), has previously issued those certain Promissory
Notes in the aggregate principal amount of $3,032,657.47 (the
“Initial Notes”), which were assigned to Investor as
holder thereof on September 20, 2007.
B. The
LLC
desires to transfer to the Company, and the Company desires to assume and
acquire, $500,000.00 of debt under the Initial Notes (the “Assigned
Debt”), leaving the remaining principal and interest due and owing
to Investor pursuant to the remaining Initial Notes (such remaining promissory
notes shall be referred to herein as the “Remaining
Notes,” and the transfer by LLC hereunder shall be referred to as
the “Note Transfer”).
C. The
Investor desires to obtain from the Company, and the Company desires to deliver
to the Investor, shares of Common Stock of the Company, par value $0.0001
per
share (the “Common Stock”), and 100% of the membership
interests (the “Interests”) of the LLC (the
“Share and Interest Transfer”).
D. The
Company desires to obtain from Investor, and Investor desires to deliver
to the
Company, the obligation to defend, indemnify and hold harmless the Company
and
its designees from any and all claims arising from or as a result of the
business operations or assets of the LLC (the
“Indemnification,” and together with the Note Transfer
and Share and Interest Transfer, the
“Transactions”).
E. The
Company has obtained a fairness opinion from Gemini Valuation Services, LLC
stating that the Transactions contemplated by this Agreement are fair to
the
Company and its stockholders from a financial point of view (the
“Fairness Opinion”).
F. The
Parties desire to set forth in this Agreement the terms and conditions
applicable to the Transactions.
AGREEMENT:
NOW,
THEREFORE, in consideration of the premises and the mutual promises herein
made,
and in consideration of the representations, warranties, and covenants contained
herein, the Parties agree as follows:
1. Issuance
and Delivery of Common Stock; Transfer of Interests.
1.1 The
Company has authorized and hereby
agrees to (i) issue and deliver to Investor, and Investor agrees to acquire
from
the Company, 79,311,256 shares of Common Stock; and (ii) transfer to Investor,
and Investor agrees to acquire from Company, 100% of the
Interests. The shares of Common Stock to be issued pursuant to the
terms hereof are referred to as the
“Shares”. The Shares, together with the
shares of Common Stock owned by Investor prior to Closing, shall represent
95%
of the Fully Diluted Capital Stock immediately following the
Closing. For purposes of this Agreement, “Fully Diluted
Capital Stock” shall mean the Company’s issued and outstanding
shares of Common Stock, assuming the conversion or exercise of all outstanding
securities convertible into or exercisable for shares of Common
Stock.
1.2 Closing
and Delivery.
1.2.1 Closing. The
issuance of the Shares and the transfer of the Interests shall occur as soon
as
reasonably practicable following the satisfaction or waiver of all conditions
to
closing described in Section 5 below. The closing of such
respective issuance and transfer is referred to herein as the
“Closing,” and the date of the Closing is referred to
herein as the “Closing Date.” The Closing
shall be held at the offices of the Company first set forth above.
1.2.2 Deliveries
by Investor. At the Closing, the Investor shall (a) surrender to
the Company the Initial Notes so that such notes can be cancelled and reissued
by the Company to represent the Assigned Debt and the Remaining Notes; and
(b)
deliver an executed signature page to the Registration Rights Agreement between
the Company and Investor in the form attached hereto as Exhibit A (the
“Registration Rights Agreement”).
1.2.3 Deliveries
by Company. At the Closing, the Company shall (a) deliver to the
Investor an assignment and assumption of Assigned Debt (the
“Assignment”) executed by the LLC (as assignor) and
Company (as assignee), and/or a replacement note to represent and evidence
the
Assigned Debt to document the Note Transfer, (b) deliver to the Investor
a
certificate evidencing the Shares acquired at the Closing, (c) deliver an
executed signature page to the Registration Rights Agreement, and (d) deliver
to
the Investor a certificate evidencing the Interests transferred at the Closing
or otherwise deliver an assignment of interests in a form reasonably acceptable
to Investor in order to adequately document the transfer of the Interests
to the
Investor.
1.3 Assumption
of Liabilities. Subject to the provisions of this Agreement, the
Investor agrees that upon transfer of the Interests on the Closing Date,
it
shall assume, pay, satisfy, discharge, perform and fulfill, to the extent
not
paid, satisfied, performed, discharged or fulfilled by the Company on or
before
the Closing Date or the LLC following the Closing Date, all of the Liabilities
of the Company and/or the LLC arising out of, or relating to, periods, events,
or occurrences happening prior to the Closing (the “Assumed
Liabilities”) other than the Assigned
Debt. “Liabilities” shall mean any direct
or indirect liability, indebtedness, obligation, commitment, expense, claim,
deficiency, deferred income, guaranty, or endorsement of or by any person
or
entity of any type, whether accrued, absolute, contingent, matured, unmatured
or
otherwise.
2. Representations
and Warranties of the Company. The Company hereby represents and
warrants to the Investor that:
2.1 Status. The
Company is a corporation duly organized, validly existing and in good standing
under the laws of the State of Delaware and has all requisite corporate power
and authority to carry on its business as now conducted and as proposed to
be
conducted. The LLC is a limited liability company duly organized,
validly existing and in good standing under the laws of the State of California
and has all requisite limited liability company power and authority to carry
on
its business as now conducted and as proposed to be conducted. The Interests
constitute all of the issued and outstanding membership interests and economic
interests in the LLC.
2.2 Power. The
Company has all requisite power and authority to accept, execute and deliver
this Agreement, to issue the Shares, to transfer the Interests, to except,
execute and deliver the Assignment, and to carry out the provisions of this
Agreement.
2.3 Approvals. All
action on the part of the Company, its Board of Directors and stockholders
necessary for the authorization, execution and delivery of this Agreement,
the
performance of all obligations of the Company hereunder, the authorization,
issuance, sale and delivery of the Shares hereunder, the transfer and delivery
of the Interests, and the authorization, execution and deliver of the Note
Transfer have been taken (other than approval by the Company’s stockholders,
which is a condition to Closing), and this Agreement, the Registration Rights
Agreement and the Remaining Notes constitute valid and legally binding
obligations of the Company, enforceable in accordance with its terms, except
(i)
as limited by applicable bankruptcy, insolvency, reorganization, moratorium,
and
other laws of general application affecting enforcement of creditors’ rights
generally, and (ii) as limited by laws relating to the availability of specific
performance, injunctive relief, or other equitable remedies.
2.4 Exemption
from Registration; Valid Issuances. Subject to the accuracy of
each of the Investor’s representations in Section 3, the issuance of the
Shares and the transfer of the Interests and delivery of the Replacement
Note
will not require registration under the Securities Act of 1933, as amended
(the
“Securities Act”) or any applicable state securities
law. The Shares, when issued and delivered in accordance with the
terms of this Agreement, shall be duly and validly issued, fully-paid and
non-assessable shares of Common Stock, free of all liens, claims, encumbrances,
preemptive rights, rights of first refusal and restrictions on transfer, except
as imposed by applicable securities laws or this Agreement. The
Interests shall be free of all liens, claims, encumbrances, preemptive rights,
rights of first refusal and restrictions on transfer, except as imposed by
applicable securities laws or this Agreement.
2.5 Business
of LLC. All of the properties, rights, interests and other
tangible and intangible assets necessary to enable the Investor to conduct
the
business of the Company in the manner in which such business is currently
being
conducted, and has been conducted prior to the Closing, are owned by and
in the
name of the LLC; provided, however, that the Company shall retain $5,000.00
in
its bank account following the Closing.
3. Representations
and Warranties of the Investor. The Investor hereby represents
and warrants to the Company that:
3.1 Status. The
Investor is duly organized, validly existing and in good standing under the
laws
of the state of California, and has the power to own and operate its properties,
to carry on its business as now conducted and to enter into and to perform
its
obligations under this Agreement.
3.2 Power
and Authority. The Investor has the full legal right, power and
authority to enter into and perform its obligations under this
Agreement. The execution and delivery of this Agreement and the
performance by the Investor of its obligations hereunder are within the powers
of the Investor and have been duly authorized by all necessary action properly
taken and the Investor has received all necessary governmental approvals,
if
any, that are required. The person executing this Agreement is duly
authorized to act on behalf of the Investor.
3.3 Validity
and Binding Effect. This Agreement constitutes the valid and
legally binding obligation of the Investor, enforceable in accordance with
its
terms, except (i) as limited by applicable bankruptcy, insolvency,
reorganization, moratorium, and other laws of general application affecting
enforcement of creditors’ rights generally, and (ii) as limited by laws relating
to the availability of specific performance, injunctive relief, or other
equitable remedies.
3.4 Investment. The
Investor has been advised that the Shares will not be registered under the
Securities Act nor qualified under any state securities law, on the ground
that
no distribution or public offering of the Shares is to be effected, and that
in
this connection the Company is relying in part on the representations of
the
Investor set forth in this Section 3. The Investor represents
that:
3.4.1 Investment
Intent. The Investor is acquiring the Shares solely for its own
account, for investment purposes only, and with no present intention of
distributing, selling or otherwise disposing of the Shares.
3.4.2 Economic
Risk. The Investor is able to bear the economic risk of an
investment in the Shares acquired by it or to be acquired by it pursuant
to this
Agreement and can afford to sustain a total loss on such
investment.
3.4.3 Sophistication. The
Investor (i) has a preexisting business relationship with the Company or
its
officers and/or directors, and (ii) is an experienced and sophisticated
investor, is able to fend for itself in the transactions contemplated by
this
Agreement, and has such knowledge and experience in financial and business
matters that it is capable of evaluating the risks and merits of acquiring
the
Shares. The Investor has had, during the course of this transaction and prior
to
its purchase of the Shares the opportunity to ask questions of, and receive
answers from, the Company and its management concerning the Company and the
terms and conditions of this Agreement. The Investor hereby
acknowledges that it has received all such information as it considers necessary
for evaluating the risks and merits of acquiring the Shares and for verifying
the accuracy of any information furnished to it or to which he had
access.
3.4.4 Accredited
Investor. The Investor is an “accredited investor” for purposes
of Regulation D promulgated by the Securities and Exchange Commission (the
“Commission”) under the Securities Act.
3.5 Transfer
Restrictions. The Investor understands the restrictions on resale
and transfer of the Shares imposed upon the Investor pursuant to Section
4 of this Agreement, and will abide by such resale and transfer
restrictions.
3.6 Legend. The
Investor understands that a legend in substantially the following form will
be
placed on the certificates representing the Shares (if any):
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“THE
SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), OR ANY STATE
SECURITIES LAWS, HAVE BEEN TAKEN FOR INVESTMENT, AND MAY NOT BE
SOLD OR
OFFERED FOR SALE IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE ACT AND ANY APPLICABLE STATE SECURITIES LAW OR AN OPINION
OF
COUNSEL SATISFACTORY TO THE COMPANY THAT REGISTRATION IS NOT
REQUIRED.”
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4. Restrictions
on Transfer.
4.1 Securities
Law Compliance. The Investor hereby agrees that none of the
Shares shall be sold, transferred, assigned, pledged, hypothecated or otherwise
disposed of unless and until one of the following events shall have
occurred:
4.1.1 Such
securities are disposed of pursuant to and in conformity with an effective
registration statement filed with the Commission pursuant to the Securities
Act
or pursuant to Rule 144 of the Commission thereunder; or
4.1.2 The
Company shall have received a written opinion of counsel reasonably acceptable
to the Company (which may be counsel for the Company) to the effect that
the
proposed transfer is exempt from the registration and prospectus delivery
requirements of the Securities Act.
As
a
further condition to any such disposition and to the Company’s obligation to
register any such disposition, so long as the legend set forth above will
appear
on the stock certificate resulting from such transfer, the Company may require,
as a condition to such transfer, that the contemplated transferee furnish
the
Company with an investment letter in form and substance reasonably satisfactory
to the Company and its counsel.
4.2 Registration
Rights. The Investor shall receive certain registration rights in
connection with the issuance of the Shares in accordance with the terms and
conditions of the Registration Rights Agreement.
5. Conditions
to Closing.
5.1 Conditions
to the Obligations of Investor. The obligations of the Investor
to acquire the Shares and Interests pursuant to the terms of this Agreement
at
the Closing and the other obligations of the Investor under this Agreement
are
subject to the satisfaction as of the Closing of the following conditions,
any
of which may be waived in writing in whole or in part by the
Investor:
5.1.1 Representations
and Warranties. The representations and warranties of the Company
shall be true and correct in all material respects (except for representations
and warranties that contain qualifications as to materiality, which shall
be
true and correct in all respects) at and as of the date when made and as
of the
Closing Date as though made at that time, and the Investor shall have received
a
certificate attesting thereto from the Company signed by a duly authorized
officer of the Company.
5.1.2 Board
Approval. The Company shall have delivered to the Investor a
resolution of a majority of the Board of Directors of the Company, including
a
majority of members of the Board of Directors of the Company who do not have
an
interest in the transactions contemplated by this Agreement, approving the
transactions contemplated by this Agreement.
5.1.3 Stockholder
Approval. This Agreement and the Transactions shall have been
duly and validly approved by the requisite vote or consent of Company’s
stockholders.
5.1.4 Amendment
to Certificate of Incorporation. The Company shall have amended
its certificate of incorporation to (i) change its name from “Landbank Group,
Inc.” to another name reasonably acceptable to Investor, which name shall not
include the word “Landbank” or any variation thereof, and (ii) increase the
number of shares of authorized common stock from 100,000,000 to
2,000,000,000.
5.1.5 Deliveries
of the Company. At the Closing, the Company shall have delivered
or caused to be delivered to Investor those deliveries required to be delivered
at Closing pursuant to Section 1.2.3 along with a certificate executed by
the
President of the Company, dated the Closing Date, certifying (1) the resolutions
of Company’s Board of Directors and stockholders approving and authorizing the
execution, delivery and performance of the Agreement and the other transaction
documents to which the Company is a party, (2) the certificate of incorporation
of the Corporation, as amended hereunder, and (3) the satisfaction of the
closing conditions contained in this Section 5.1.
5.1.6 Expenses. At
or prior to the Closing, the LLC shall have paid all expenses, fees and other
amounts incurred by the Company or the LLC with respect to this Agreement
and
the Transactions contemplated herein. Additionally, the LLC shall
transferred cash to the Company’s bank account such that its balance is at least
$5,000.00.
5.1.7 No
Material Adverse Change. No material adverse change shall have
occurred to, and no event or circumstance shall have occurred that could
reasonably be expected to cause a material adverse change to, the LLC’s
financial condition or businesses since the date of the Agreement.
5.2 Conditions
to the Obligations of the Company. The obligations of the Company
to issue the Shares and transfer the Interests pursuant to the terms of this
Agreement at the Closing and the other obligations of the Company under this
Agreement are subject to the satisfaction as of the Closing of the following
conditions, any of which may be waived in writing in whole or in part by
the
Company:
5.2.1 Representations
and Warranties. The representations and warranties of the
Investor shall be true and correct in all material respects (except for
representations and warranties that contain qualifications as to materiality,
which shall be true and correct in all respects) at and as of the date when
made
and as of the Closing Date as though made at that time, and the Company shall
have received a certificate attesting thereto from the Investor signed by
a duly
authorized officer of the Investor.
5.2.2 Stockholder
Approval. This Agreement and the Transactions shall have been
duly and validly approved by the requisite vote or consent of Company’s
stockholders.
5.2.3 Deliveries
of the Investor. At the Closing, the Investor shall have
delivered or caused to be delivered to Investor those deliveries required
to be
delivered at Closing pursuant to Section 1.2.2 along with a certificate executed
by a Manager of the Investor, dated the Closing Date, certifying the
satisfaction of the closing conditions contained in this Section
5.2.
6. Additional
Agreements.
6.1 Stockholder
Approval.
6.1.1 As
soon
as practicable after the date of this Agreement, and in no event later than
fifteen (15) business days after the date hereof, the Company shall prepare
and
cause to be filed with the Commission a proxy statement pursuant to Rule
14a-3
promulgated under Section 14A of the Securities Exchange Act of 1934, as
amended
(the “Exchange Act”) (together with any amendments or
supplements thereto, the "Proxy Statement") in
connection with the approval and adoption of this Agreement and the
Transactions. The Proxy Statement shall include a statement that
Company's Board of Directors has approved this Agreement, determined that
this
Agreement and the Transactions are in the best interests of Company's
stockholders and recommends that Company's stockholders vote in favor thereof,
and Company shall use its commercially reasonable efforts to solicit such
votes
from its stockholders. The Proxy Statement shall comply as to form in all
material respects with the provisions of the Exchange Act and the rules and
regulations promulgated thereunder. Company shall immediately advise
Investor if the Proxy Statement, including any amendments or supplements
thereto, at the time filed with the Commission, as of the date of mailing
to the
stockholders of Company or at any other time, contains any untrue statement
of a
material fact or omits to state any material fact required to be stated therein
or necessary in order to make the statement therein, in light of the
circumstances under which they are made, not misleading. Company
shall respond promptly to any comments of the Commission or its staff with
respect thereto and use its best efforts to have the Proxy Statement cleared
by
the Commission as soon as practicable after its filing. Company shall also
promptly furnish to Investor copies of any correspondence received from the
Commission, and shall permit representatives of the Investor to attend any
telephone calls with the Commission that discuss comments made by its staff.
As
soon as practicable after clearance by the Commission of the Proxy Statement,
Company shall mail the Proxy Statement to its stockholders. In addition,
Company
shall take all action necessary in accordance with applicable Laws and its
charter to duly call, give notice of, convene and hold a meeting of its
stockholders as soon as practicable solely to consider and approve this
Agreement and the Transactions.
6.1.2 In
the
event that prior to the Company’s filing of the Proxy Statement, Company
receives authorization by written consent from that number of holders of
its
capital stock necessary to approve this Agreement and the Transactions, then
notwithstanding the provisions of this Section 6.1 to the contrary, as soon
as
practicable after the date of this Agreement, and in no event later than
fifteen
(15) business days after the date hereof, Company shall prepare and cause
to be
filed with the Commission an information statement pursuant to Rule 14(c)
promulgated under Section 14A of the Exchange Act (together with any amendments
or supplements thereto, the "Information Statement")
in connection with the approval and adoption of this Agreement and the
Transactions, and shall take all other actions necessary and consistent with
the
provisions of this Section 6.1, with respect to the Information
Statement.
6.1.3 As
promptly as practicable, Company shall properly prepare and file any other
filings required under the Securities Act, the Exchange Act or any other
Laws
(including, without limitation, state securities and "blue sky" laws) relating
to the Transactions contemplated by this Agreement (collectively,
"Other Filings").
6.1.4 Company
shall provide copies of drafts of the Proxy Statement or the Information
Statement, as the case may be, to Company at least two (2) business days
prior
to the date of filing of such document with the Commission (including with
respect to each amendment or supplement thereto) so as to allow Investor
to
review and comment on such documents. Such review shall not be deemed a review
by Investor as to whether the Company has properly complied with Commission
rules or regulations. Prior to the filing of the Proxy Statement or the
Information Statement, as the case may be, with the Commission, the Company
shall consider in good faith any comments made by, or changes requested by,
Investor.
6.2 The
Company shall take such actions, do such things, execute and deliver such
other
documents, instruments or agreements, and make such filings as may be necessary
or desirable in order to obtain the approval of the Company’s stockholders as
described herein.
7. Termination.
7.1 Termination
Events. This Agreement may be terminated at any time prior to the
Closing by mutual written consent of the Company and the Investor.
7.2 Effect
of Termination. Upon termination of this Agreement as provided in
Section 7.1, this Agreement shall forthwith become void and there shall
be no liability or obligation on the part of any party hereto or their
respective, subsidiaries, stockholders, directors, officers,
employees, agents or other representatives.
8. Indemnification.
8.1 Each
of
Investor and FPLLC (the “Indemnifying Parties”) shall
defend, hold harmless and indemnify each of the Company Indemnitees from
and
against, and shall compensate and reimburse each of the Company Indemnitees
for,
any Damages that are directly or indirectly suffered or incurred by any of
the
Company Indemnitees or to which any of the Company Indemnitees may otherwise
become subject at any time (regardless of whether or not such Damages relate
to
any third party claim) and that arise directly or indirectly from or as a
direct
or indirect result of, or are directly or indirectly connected with (i) the
operation of the business or assets of the LLC prior to or following the
Closing, but not including any Damages arising from the Assigned Debt which
shall remain an obligation of the Company following the Closing, (ii) any
breach
of any representation or warranty or covenant made by the Investor in this
Agreement and (iii) the Assumed Liabilities excluding the Assigned
Debt. “Company Indemnitees” shall
mean (a) the Company; (b) the Company’s officers,
directors, stockholders, and other current and future affiliates; and (c)
the
respective successors and assigns of the persons and entities referred to
in
clauses “(a)” and “(b)” above. “Damages”
shall include any direct damage, injury, liability,
claim, demand, settlement,
judgment, award, fine, penalty, tax, fee (including any reasonable legal
fee,
expert fee, accounting fee or advisory fee), charge, cost (including any
cost of
investigation) or expense of any nature; but shall specifically exclude any
special, incidental, consequential, lost profits, indirect, punitive, or
exemplary damages.
8.2 If
any
Damages or alleged Damages shall be brought against any Company Indemnitee
in
respect of which such Company Indemnitee may be indemnified under this Section
8
by Indemnifying Parties, such Company Indemnitee shall promptly notify
the Indemnifying Parties in writing. The Indemnifying Parties at
their option may assume the defense of any action in respect of which it
has
acknowledged its obligation to indemnify such Company Indemnitee under this
Section 8. If any Indemnifying Party assumes the defense of any
action, such Company Indemnitee shall not be liable for any settlement thereof
without its consent (but such consent will not be unreasonably
withheld). If any Indemnifying Party assumes the defense of any such
action, such Company Indemnitee shall have the right to employ separate counsel
in such action and to participate in the defense thereof, but the fees and
expenses of such counsel shall be paid by such Company Indemnitee unless
there
exists a conflict between the positions of the Indemnifying Party and of
such
Company Indemnitee in conducting the defense of such action or that there
may be
legal defenses available to such Company Indemnitee different from or in
addition to those which counsel to the Indemnifying Party would be able to
raise, in which event the reasonable fees and expenses of such counsel shall
be
paid by the Indemnifying Party.
8.3 Contribution. If
the indemnification from the Indemnifying Parties provided for in this Section
8
is unavailable to a Company Indemnitee hereunder in respect of any Damages
referred to therein, then the Indemnifying Parties, in lieu of indemnifying
such
Company Indemnitee, shall contribute to the amount paid or payable by such
Indemnifying Parties as a result of such Damages in such proportion as is
appropriate to reflect the relative fault of the Indemnifying Parties and
Company Indemnitees in connection with the actions which resulted in such
Damages, as well as any other relevant equitable considerations. The
relative fault of such Indemnifying Parties and Company Indemnitees shall
be
determined by reference to, among other things, whether any action in question,
including any untrue or alleged untrue statement of a material fact, has
been
made by, or relates to information supplied by, such Indemnifying Party or
Company Indemnitee, and the parties intent, knowledge, access to information
and
opportunity to correct or prevent such action. The amount paid or
payable by a party as a result of the Damages shall be deemed to include
any
reasonable legal or other fees or expenses reasonably incurred by such party
in
connection with any investigation or proceeding. No Company Indemnitee guilty
of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who was
not
guilty of such fraudulent misrepresentation.
9. Miscellaneous.
9.1 Notices. Any
and all notices, elections or demands permitted or required to be made under
this Agreement shall be in writing, signed by the party giving such notice,
election or demand and shall be delivered personally, telecopied, or sent
by
certified mail or overnight via nationally recognized courier service (such
as
Federal Express), to the other party at the address set forth in the
introductory paragraph to this Agreement or at such other address as may
be
supplied in writing and of which receipt has been acknowledged in
writing. The date of personal delivery or telecopy or two (2)
business days after the date of mailing (or the next business day after delivery
to such courier service), as the case may be, shall be the date of such notice,
election or demand.
9.2 Governing
Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA, WITHOUT REGARD TO THE
CONFLICTS OF LAW PRINCIPLES OF SUCH STATE.
9.3 Submission
to Jurisdiction; Venue. The Parties hereto expressly acknowledge
and agree that the exclusive forum for the resolution of disputes hereunder
shall be the courts located in Los Angeles, California, and waive any objection
thereto on the basis of personal jurisdiction or venue.
9.4 Further
Assurances. Whether or not specifically required under the terms
of this Agreement, each party hereto shall execute and deliver such documents
and take such further actions as shall be necessary in order for such party
to
perform all of his or its obligations specified herein or reasonably implied
from the terms hereof.
9.5 Amendment. This
Agreement may not be amended or any provision hereof waived in whole or in
part,
except by a written amendment signed by the Company and the
Investor.
9.6 Successors
and Assigns. Whenever in this Agreement one of the parties hereto
is named or referred to, the heirs, legal representatives, successors,
successors-in-title and assigns of such parties shall be included, and all
covenants and agreements contained in this Agreement by or on behalf of the
Company or by or on behalf of an Investor shall bind and inure to the benefit
of
their respective heirs, legal representatives, successors-in-title and assigns,
whether so expressed or not.
9.7 Assignability. Neither
this Agreement nor any right, remedy, obligation or liability arising hereunder
or by reason hereof shall be assignable by either the Company or the Investor,
without the prior written consent of each other party.
9.8 Entire
Agreement. This Agreement constitutes the entire agreement and
understanding of the parties in respect of its subject matters and supersedes
all prior understandings, agreements, or representations by or between the
parties, written or oral, to the extent they relate in any way to the subject
matter hereof.
9.9 Counterparts. This
Agreement may be executed in one or more counterparts, each of which shall
be
deemed as original but all of which together shall constitute one and the
same
instrument.
9.10
Severability. The
provisions of this Agreement shall be deemed severable and the invalidity
or
unenforceability of any provision shall not affect the validity or
enforceability of the other provisions hereof.
9.11
Article
and Section Headings, Defined Terms. Numbered and titled article
and section headings and defined terms are for convenience only and shall
not be
construed as amplifying or limiting any of the provisions of this
Agreement.
9.12
Expenses.
Each party shall bear its own costs and expenses incurred in connection with
the
preparation, execution and performance of this Agreement and the transactions
contemplated hereunder including all fees and expenses of agents,
representatives, financial advisors, legal counsel and accountants.
9.13
Independent
Counsel; Interpretation. THE INVESTOR AND FPLLC HEREBY
EXPRESSLY REPRESENT, ACKNOWLEDGE AND CONFIRM THAT THEY UNDERSTAND THAT STUBBS
ALDERTON & MARKILES, LLP HAS REPRESENTED THE COMPANY ONLY IN THE
TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT AND THAT THEY HAVE BEEN ADVISED
TO
SEEK AND OBTAIN LEGAL ADVICE FROM INDEPENDENT COUNSEL REPRESENTING THEIR
INTERESTS WITH RESPECT TO THIS AGREEMENT, THAT THEY HAVE HAD THE FULL RIGHT
AND
OPPORTUNITY TO CONSULT WITH SUCH COUNSEL, THAT THEY HAVE AVAILED THEMSELVES
OF
THIS RIGHT AND OPPORTUNITY, THAT THEY HAVE CAREFULLY READ AND FULLY UNDERSTANDS
THIS AGREEMENT IN ITS ENTIRETY, THAT THEY ARE FULLY AWARE OF THE CONTENTS
HEREOF
AND THE MEANING, INTENT AND LEGAL EFFECT OF THIS AGREEMENT, AND THAT THEY
HAVE
EXECUTED THIS AGREEMENT FREE FROM COERCION, DURESS OR UNDUE
INFLUENCE. SPECIFICALLY, BY SIGNING THIS AGREEMENT, INVESTOR AND
FPLCC UNDERSTAND, AND HEREBY ACKNOWLEDGE AND CONFIRM, THAT THEY MAY BE GIVING
UP
SIGNIFICANT LEGAL RIGHTS. SHOULD ANY PROVISION OF THIS AGREEMENT
REQUIRE JUDICIAL INTERPRETATION, IT IS AGREED THAT A COURT INTERPRETING OR
CONSTRUING THE SAME SHALL NOT APPLY A PRESUMPTION THAT THE TERMS HEREOF SHALL
BE
MORE STRICTLY CONSTRUED AGAINST ANY PARTY BY REASON OF THE RULE OF CONSTRUCTION
THAT A DOCUMENT IS TO BE CONSTRUED MORE STRICTLY AGAINST THE PARTY WHO ITSELF
OR
THROUGH ITS AGENT PREPARED THE SAME, IT BEING AGREED THAT ALL PARTIES HERETO
HAVE PARTICIPATED IN THE PREPARATION OF THIS AGREEMENT.
IN
WITNESS WHEREOF, this Agreement has been executed by the parties with the
intent
that it be effective as of the date first above written.
LANDBANK
GROUP, INC.
a
Delaware corporation
By: /s/
Eric Stoppenhagen
Name:
Eric Stoppenhagen
Its:
Interim
President
LANDBANK
ACQUISITION, LLC
a
California limited liability company
By: /s/
Douglas Gravink
Name:
Douglas
Gravink
Its:
Member
FAMILY
PRODUCTS LLC
a
California limited liability company
By: /s/
Douglas Gravink
Name:
Douglas
Gravink
Its: Member
APPENDIX
C
REGISTRATION
RIGHTS AGREEMENT
THIS
REGISTRATION RIGHTS AGREEMENT (this “Agreement”) is made and entered
into as of the 1st day of November, 2007, by and among Landbank Group, Inc.,
a
Delaware corporation (the “Company”), and Landbank
Acquisition LLC, a California limited liability company (the
“Stockholder”).
WITNESSETH:
WHEREAS,
the Company and Stockholder are parties to that certain Securities Exchange
Agreement, dated November 1, 2007 (the “Securities Exchange
Agreement”) pursuant to which the Stockholder is to be issued
79,311,256 shares of common stock of the Company (the “Common
Stock”);
WHEREAS,
it is a condition of the Securities Exchange Agreement that the Stockholder
and
Company enter into a Registration Rights Agreement in the form
hereof.
NOW
THEREFORE, in
consideration of the premises and the mutual promises herein made, and for
other
good and valuable consideration, the receipt and sufficiency of which hereby
are
acknowledged, the parties agree as follows:
1. Registration
Rights
Effective
as of the Closing of the Securities Exchange Agreement (the
“Effective Date”), the Company hereby grants to the
Stockholder the following registration rights.
A. Definitions.
As used in this Section 1, the following terms shall have the
following respective meanings:
Business
Day: Any day other than a day on which banks are authorized
or required to be closed in the State of New York.
Exchange
Act: The Securities Exchange Act of 1934, as amended, and
the rules and regulations of the SEC promulgated thereunder.
Person: Any
individual, corporation, partnership, joint venture, association, joint-stock
company, trust, unincorporated organization or government or other agency
or
political subdivision thereof.
Prospectus: The
prospectus included in any Registration Statement (including, without
limitation, a prospectus that discloses information previously omitted from
a
prospectus filed as part of an effective registration statement in reliance
upon
Rule 430A promulgated under the Securities Act), as amended or supplemented
by
any prospectus supplement, with respect to the terms of the offering of any
portion of the Registrable Securities covered by such Registration Statement,
and all other amendments and supplements to the prospectus, including
post-effective amendments, and all material incorporated by reference or
deemed
to be incorporated by reference in such prospectus.
Registrable
Securities: Each issued and outstanding share of Common
Stock held as of the Effective Date by the Stockholder and identified on
Exhibit A hereto until such time as such shares (a) have been sold
pursuant to, or are subject to, an effective registration statement under
the
Act, (b) have been sold pursuant to Rule 144, or (b) may be sold without
any
time, volume or manner limitations pursuant to section (k) of Rule
144.
Registration
Statement: Any registration statement of the Company that
covers any of the Registrable Securities pursuant to the provisions of this
Agreement, including the Prospectus, amendments and supplements to such
registration statements, including post effective amendments, all exhibits,
and
all material incorporated by reference or deemed to be incorporated by reference
in such registration statement.
Rule
144: Rule 144 promulgated by the Commission pursuant to the Act, as
such Rule may be amended from time to time, or any similar rule or regulation
hereafter adopted by the SEC having substantially the same effect as such
Rule.
SEC: The
United States Securities and Exchange Commission.
Trading
Day: A day on whichever (a) the national securities
exchange, (b) the NASDAQ Stock Market, or (c) such other securities market,
in
any such case which at the time constitutes the principal securities market
for
the Common Stock, is open for general trading of securities.
B. Demand
Registration Right. If the Company
receives at any time after the date that is six (6) months from the Effective
Date, a written request (a “Demand Request”) from the
Stockholder that the Company register any such Registrable Securities, then
the
Company shall agree to take all actions as are necessary to keep any
Registration Statement filed pursuant to this Section 1.B. effective until
the
date on which all Registrable Securities thereunder may be sold without any
restriction, under Rule 144 during any 90-day period in accordance with all
rules and regulations regarding sales of securities pursuant to Rule
144.
The
Company shall file, no later than forty-five (45) days following receipt
of a
Demand Request (the “Demand Filing Date”), a Registration
Statement (the “Demand Registration Statement”) covering such
Registrable Securities which the Company has been so requested to register
by
the Stockholder, providing for the registration under the Securities Act
of such
Registrable Securities to the extent necessary to permit the disposition
of such
Registrable Securities in accordance with the intended method of distribution
specified in such Demand Request, and use its commercially reasonable efforts
to
have such Demand Registration Statement declared effective by the SEC within
one
hundred fifty (150) days after the Demand Filing Date. If a registration
pursuant to this Section 1.B. involves an underwritten public offering, the
Stockholder registration may elect, in writing prior to the effective date
of
the Registration Statement filed in connection with such registration, not
to
register such securities in connection with such registration.
The
Company may delay making a filing of a Demand Registration Statement in
connection with a Demand Request or taking action in connection therewith
by not
more than ninety (90) days if the Company provides a written certificate
signed
by the Chief Executive Officer and Chief Financial Officer of the Company
to the
Stockholders, prior to the time it would otherwise have been required to
file
such Demand Registration Statement or take such action pursuant to this
Section 1.B., stating that the Board has determined in good faith that
the filing of such Demand Registration Statement would be seriously detrimental
to the Company or would otherwise materially adversely affect a financing,
acquisition, disposition, merger or other material transaction (collectively,
a
“Valid Business Reason”) and that it is therefore essential to
defer the filing of the Demand Registration Statement; provided, however,
that
such right to delay a Demand Request shall be exercised by the Company not
more
than once in any twelve (12)-month period and the Company shall only have
the
right to delay a Demand Request so long as such Valid Business Reason exists,
and during such time, the Company may not file a registration statement for
securities to be issued and sold for its own account or for that of anyone
other
than the Stockholders.
The
Company shall only be obligated to effect one (1) Demand Request pursuant
to
this Section 1.B.
The
Stockholder shall have the right to cancel a proposed registration of
Registrable Securities pursuant to this Section 1.B when the request for
cancellation is based upon material adverse information relating to the Company
that is different from the information known to the Stockholder at the time
of
the Demand Request. Such cancellation of a registration shall be made
in writing and shall not be counted as a Demand Request.
C. Piggyback
Registration. If the Company proposes
to register any of its securities under the Securities Act for sale to the
public for its own account or for the account of other security stockholders
(except with respect to the Initial Registration Statement, or registration
statements on Forms S-4 or S-8 or another form not available for registering
the
Registrable Securities for sale to the public), each such time it will give
written notice thereof to Stockholder of its intention so to do (such notice
to
be given at least fifteen (15) days prior to the filing
thereof). Upon the written request of the Stockholder (which request
shall specify the number of Registrable Securities intended to be disposed
of by
the Stockholder and the intended method of disposition thereof), received
by the
Company within ten (10) days after giving of any such notice by the Company,
to
register any of the Stockholder’s Registrable Securities, the Company will use
its commercially reasonable efforts to cause the Registrable Securities as
to
which registration shall have been so requested to be included in the securities
to be covered by the Registration Statement proposed to be filed by the Company,
all to the extent requisite to permit the sale or other disposition by the
Stockholder (in accordance with its written request) of such Registrable
Securities so registered (“Piggyback Registration Rights”);
provided, that if, at any time after giving written notice
of its
intention to register any securities pursuant to this Section 1.C and
prior to the effective date of the Registration Statement filed in connection
with such registration, the Company shall determine for any reason not to
register such securities, the Company shall give written notice to the
Stockholder and, thereupon, shall be relieved of its obligation to register
any
Registrable Securities in connection with such registration. If a
registration pursuant to this Section 1.C. involves an underwritten public
offering, the Stockholder may elect, in writing prior to the effective date
of
the registration statement filed in connection with such registration, not
to
register such securities in connection with such registration. The foregoing
provisions notwithstanding, the Company may withdraw any registration statement
referred to in this Section 1.C. without thereby incurring any liability
to the Stockholder.
D. Underwriting. If
a Registration Statement is for a registered public offering involving an
underwriting, the Company shall so advise the Stockholder in writing or as
a
part of the written notice given pursuant to Section 1.B or 1.C,
as applicable. In such event the right of the Stockholder to
registration pursuant to Section 1.B and/or 1.C shall be
conditioned upon the Stockholder’s participation in such underwriting and the
inclusion of the Stockholder’s Registrable Securities in the underwriting to the
extent provided herein. The Stockholder, if proposing to distribute
their securities through such underwriting, shall (together with the Company
and
any other stockholders of the Company distributing their securities through
such
underwriting) enter into an underwriting agreement in customary form with
the
underwriter or underwriters selected for such underwriting by the Company
or
selling stockholders, as applicable. Notwithstanding any other
provision of this Section 1, if the underwriter or the Company determines
that marketing factors require a limitation of the number of shares to be
underwritten, the underwriter may exclude some or all Registrable Securities
from such registration and underwriting. The Company shall so advise
the Stockholder, and the number of shares of Registrable Securities that
may be
included in the registration and underwriting, if any, shall be allocated
to the
Stockholder as follows:
(i) In
the
event of a registration that is initiated by the exercise of demand registration
rights by the Stockholder, then the number of shares that may be included
in the
registration and underwriting shall be allocated first to the
Stockholder;
(ii) In
the
event of a registration that is initiated by the Company, the number of shares
that may be included in the registration and underwriting shall be allocated
first to the Company and then, subject to obligations and commitments existing
as of the date hereof, to all selling stockholders, including the Stockholder,
who have requested to sell in the registration on a pro rata basis according
to
the number of shares requested to be included; and
(iii) In
the
event of a registration that is initiated by the exercise of demand registration
rights by a stockholder or stockholders of the Company (other than the
Stockholder), then the number of shares that may be included in the registration
and underwriting shall be allocated first to such selling stockholders who
exercised such demand and then, subject to obligations and commitments existing
as of the date hereof, to all other selling stockholders, including the
Stockholder, who have requested to sell in the registration, on a pro rata
basis
according to the number of shares requested to be included.
No
Registrable Securities excluded from the underwriting by reason of the
underwriter’s marketing limitation shall be included in such
registration. If the Stockholder disapproves of the terms of any such
underwriting, the Stockholder may elect to withdraw therefrom by written
notice
to the Company and the underwriter. The Registrable Securities and/or
other securities so withdrawn from such underwriting shall also be withdrawn
from such registration.
E. Registration
Procedures. In connection with the
registration obligations of the Company pursuant to the terms and conditions
of
this Agreement, the Company shall:
(i) Prepare
and file with the SEC such amendments and supplements to all Registration
Statements and each related Prospectus as may be necessary to comply with
the
provisions of the Act with respect to the disposition of securities covered
by
such Registration Statements;
(ii) Respond
as promptly as reasonably practicable to any comments received from the SEC
with
respect to a Registration Statement or any amendment thereto.
(iii) Notify
the Stockholder as promptly as reasonably practicable and confirm such notice
in
writing no later than one trading day following the day (A) when a Prospectus
or
any Prospectus supplement or post-effective amendment to a Registration
Statement is proposed to be filed and (B) with respect to a Registration
Statement or any post-effective amendment, when the same has become effective;
(iv) Furnish
such number of Prospectuses and other documents incident thereto, including
supplements and amendments, as the Stockholder may reasonably request;
(v) Furnish
to the Stockholder, upon request, a copy of all documents filed with and
all
correspondence from or to the SEC in connection with any such registration
statement other than non-substantive cover letters and the like;
(vi) Use
its
reasonable best efforts to avoid the issuance of, or, if issued, obtain the
withdrawal of (i) any order suspending the effectiveness of a registration
statement, or (ii) any suspension of the qualification (or exemption from
qualification) of any of the Registrable Securities for sale in any
jurisdiction, at the earliest practicable moment; and
(vii) Use
its
reasonable best efforts to comply with all applicable rules and regulations
of
the SEC.
Notwithstanding
the foregoing, if at any time or from time to time after the date hereof,
the
Company notifies the Stockholder whose shares are registered on a Registration
Statement (a “Selling Stockholder”) in writing of the
existence of an event or circumstance that is not disclosed in such Registration
Statement and that may have a material effect on the Company or its business
(a
“Potential Material Event”), the Selling Stockholder
shall not offer or sell any Registrable Securities, or engage in any other
transaction involving or relating to the Registrable Securities, from the
time
of the giving of notice with respect to a Potential Material Event until
the
Company notifies the Selling Stockholder that such Potential Material Event
either has been added to the Registration Statement by amendment or supplement
or no longer constitutes a Potential Material Event; provided, that the
Company may not so suspend the right of the Selling Stockholder for more
than
One-Hundred Twenty (120) days during any twelve (12) month period.
F. Registration
Expenses.
(i) All
expenses incident to the Company’s performance of, or compliance with, the
provisions hereof, including without limitation, all Commission and securities
exchange or NASD registration and filing fees, fees and expenses of compliance
with securities or “blue sky” laws (including fees and disbursements of counsel
in connection with “blue sky” qualifications of the Registrable Securities),
printing expenses, messenger and delivery expenses, internal expenses
(including, without limitation, all salaries and expenses of the Company’s
officers and employees performing legal or accounting duties), fees and expenses
incurred in connection with the listing of the securities to be registered,
if
any, on each securities exchange on which similar securities issued by the
Company are then listed, fees and disbursements of counsel for the Company
and
its independent certified public accountants (including the expense of any
special audit or “cold comfort” letters required by, or incident to, such
performance), Securities Act liability insurance (if the Company elects to
obtain such insurance), reasonable fees and expenses of any special experts
retained by the Company in connection with such registration, fees and expenses
of other Persons retained by the Company in connection with each registration
hereunder (but not including the fees and expense of legal counsel retained
by
the Stockholder, or any underwriting fees, discounts or commissions attributable
to the sale of Registrable Securities) are herein called “Registration
Expenses.”
(ii) The
Company will pay all Registration Expenses in connection with each Registration
Statement filed pursuant to Section 1 except as otherwise set forth
therein. Other than as specifically provided for in Section
1.A hereof, all expenses to be borne by the Stockholder in connection with
any Registration Statement filed pursuant to Section 1 (including,
without limitation, all underwriting fees, discounts or commissions attributable
to such sale of Registrable Securities) shall be borne by the participating
Stockholder.
G. Indemnification;
Contribution.
(i) Indemnification
by the Company. The Company agrees to indemnify and hold
harmless, to the full extent permitted by law, the Stockholder, its officers,
directors and each Person who controls the Stockholder (within the meaning
of
the Securities Act), and any agent or investment adviser thereof, against
all
losses, claims, damages, liabilities and expenses (including reasonable
attorneys’ fees and costs of investigation) arising out of or based upon any
untrue or alleged untrue statement of material fact contained in any
Registration Statement, any amendment or supplement thereto, any Prospectus
or
preliminary Prospectus or any omission or alleged omission to state therein
a
material fact required to be stated therein or necessary to make the statements
therein not misleading, except insofar as the same arise out of or are based
upon any such untrue statement or omission based upon information with respect
to the Stockholder furnished in writing to the Company by or on behalf of
the
Stockholder expressly for use therein; provided that, in the event that
the Prospectus shall have been amended or supplemented and copies thereof
as so
amended or supplemented, shall have been furnished to the Stockholder prior
to
the confirmation of any sales of Registrable Securities, such indemnity with
respect to the Prospectus shall not inure to the benefit of the Stockholder
if
the Person asserting such loss, claim, damage or liability and who purchased
the
Registrable Securities from the Stockholder did not, at or prior to the
confirmation of the sale of the Registrable Securities to such Person, receive
a
copy of the Prospectus as so amended or supplemented and the untrue statement
or
omission of a material fact contained in the Prospectus was corrected in
the
Prospectus as so amended or supplemented.
(ii) Indemnification
by Stockholder of Registrable Securities. In connection with any
Registration Statement in which the Stockholder is participating, the
Stockholder will furnish to the Company in writing such information with
respect
to the name and address of the Stockholder and such other information as
may be
reasonably required for use in connection with any such Registration Statement
or Prospectus and agrees to indemnity, to the full extent permitted by law,
the
Company, its directors and officers and each Person who controls the Company
(within the meaning of the Securities Act) against any losses, claims, damages,
liabilities and expenses resulting from any untrue statement of a material
fact
in the Registration Statement or Prospectus or any amendment thereof or
supplement thereto or necessary to make the statements therein not misleading,
to the extent, but only to the extent, that such untrue or alleged untrue
statement relates to any information with respect to the Stockholder so
furnished in writing by the Stockholder specifically for inclusion in any
Prospectus or Registration Statement; provided, however, that the
Stockholder shall not be liable in any such case to the extent that prior
to the
filing of any such Registration Statement or Prospectus or amendment thereof
or
supplement thereto, the Stockholder has furnished in writing to the Company
information expressly for use in such Registration Statement or Prospectus
or
any amendment thereof or supplement thereto which corrected or made not
misleading information previously furnished to the Company. In no
event shall the liability of the Selling Stockholder hereunder be greater
in
amount than the dollar amount of the net proceeds received by the Selling
Stockholder upon the sale of the Registrable Securities, sold under such
Registration Statement or Prospectus as contemplated herein, giving rise
to such
indemnification obligation.
(iii) Conduct
of Indemnification Proceedings. Any Person entitled to
indemnification hereunder agrees to give prompt written notice to the
indemnifying party after the receipt by such Person of any written notice
of the
commencement of any action, suit, proceeding or investigation or threat thereof
made in writing for which such Person will claim indemnification or contribution
pursuant to the provisions hereof and, unless in the judgment of counsel
of such
indemnified party a conflict of interest may exist between such indemnified
party and the indemnifying party with respect to such claim, permit the
indemnifying party to assume the defense of such claim. Whether or
not such defense is assumed by the indemnifying party, the indemnifying party
will not be subject to any liability for any settlement made without its
consent
(but such consent will not be unreasonably withheld). No indemnifying
party will consent to entry of any judgment or enter into any settlement
which
does not include as an unconditional term thereof the giving by the claimant
or
plaintiff to such indemnified party of a release from all liability in respect
of such claim or litigation. If the indemnifying party is not
entitled to, or elects not to, assume the defense of a claim, it will not
be
obligated to pay the fees and expenses of more than one counsel (plus such
local
counsel, if any, as may be reasonably required in other jurisdictions) with
respect to such claim, unless in the judgment of any indemnified party a
conflict of interest may exist between such indemnified party and any other
of
such indemnified parties with respect to such claim, in which event the
indemnifying party shall be obligated to pay the fees and expenses of such
additional counsel or counsels. For the purposes of this Section
5(c), the term “conflict of interest” shall mean that there are one or more
legal defenses available to the indemnified party that are different from
or
additional to those available to the indemnifying party or such other
indemnified parties, as applicable, which different or additional defenses
make
joint representation inappropriate.
(iv) Contribution. If
the indemnification from the indemnifying party provided for in this Section
1.G
is unavailable to an indemnified party hereunder in respect of any losses,
claims, damages, liabilities or expenses referred to therein, then the
indemnifying party, in lieu of indemnifying such indemnified party, shall
contribute to the amount paid or payable by such indemnified party as a result
of such losses, claims, damages, liabilities or expenses in such proportion
as
is appropriate to reflect the relative fault of the indemnifying party and
indemnified parties in connection with the actions which resulted in such
losses, claims, damages, liabilities or expenses, as well as any other relevant
equitable considerations. The relative fault of such indemnifying
party and indemnified parties shall be determined by reference to, among
other
things, whether any action in question, including any untrue or alleged untrue
statement of a material fact, has been made by, or relates to information
supplied by, such indemnifying party or indemnified parties, and the parties
intent, knowledge, access to information and opportunity to correct or prevent
such action. The amount paid or payable by a party as a result of the
losses, claims, damages, liabilities and expenses referred to above shall
be
deemed to include, subject to the limitations set forth in Section 1.G(iii),
any
reasonable legal or other fees or expenses reasonably incurred by such party
in
connection with any investigation or proceeding. No Person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities
Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation.
(v) If
indemnification is available under this Section 1.G, the indemnifying parties
shall indemnity each indemnified party to the full extent provided in Sections
5(a) and (b) without regard to the relative fault of said indemnifying party
or
indemnified party or any other equitable consideration provided for in this
Section 1.G.
H. Limitation
to Registration
Requirement. Notwithstanding anything
else herein to the contrary, the Company shall not be obligated to effect
any
registration of the Registrable Securities or take any other action (i) in
any
particular jurisdiction in which the Company would be required to execute
a
general consent to service of process in effecting such registration,
qualification or compliance unless the Company is already subject to service
in
such jurisdiction and except as may be required by the Securities Exchange
Act,
or (ii) during any period in which the Company suspends the rights of a
subscriber after giving the Subscriber written notification of a Material
Event.
I. Transfer
of Rights. The rights to cause the
Company to register Registrable Securities granted pursuant to the provisions
hereof may be transferred or assigned by the Stockholder to a transferee
or
assignee; provided; however, that the transferee or assignee of such
rights assumes the obligations of such transferor or assignor, as the case
may
be, hereunder.
J. Information
by Stockholder. The Stockholder or holders of
Registrable Securities included in any Registration Statement shall furnish
to
the Company such information regarding the Stockholder and the distribution
of
securities by the Stockholder as the Company may request in
writing.
K. Compliance. The
Stockholder covenants and agrees that the Stockholder will comply with the
prospectus delivery requirements of the Act as applicable to the Stockholder
in
connection with sales of Registrable Securities pursuant to the Registration
Statements required hereunder.
2. Amendment. Except
as otherwise provided herein, the provisions hereof may not be amended, modified
or supplemented, and waivers or consents to departures from the provisions
hereof may not be given unless the Company has obtained the written consent
of
the Stockholder.
3. Successors
and Assigns. The terms and conditions of this Agreement
shall inure to the benefit of and be binding upon the respective permitted
successors and assigns of the parties. Nothing in this Agreement,
express or implied, is intended to confer upon any party other than the parties
hereto or their respective successors and assigns any rights, remedies,
obligations or liabilities under or by reason of this Agreement, except as
expressly provided in this Agreement.
4. Governing
Law. This Agreement shall be governed
by and construed under the laws of the State of California, irrespective
of its
choice of law principles.
5. Counterparts. This
Agreement may be executed in two or more counterparts, each of which shall
be
deemed an original, but all of which together shall constitute one and the
same
instrument.
6. Titles
and Subtitles. The titles and subtitles used in
this Agreement are used for convenience only and are not to be considered
in
construing or interpreting this Agreement.
7. Notices.
Unless otherwise provided, any notice required or permitted under this Agreement
shall be given in writing and shall be deemed effectively given upon personal
delivery to the party to be notified or, if sent by telex, telecopier or
e-mail
transmission, upon receipt of the correct answer back, or upon deposit with
the
United States Post Office, by registered or certified mail, or upon deposit
with
an overnight air courier, in each case postage prepaid and addressed to the
party to be notified at the address indicated for such party in the records
of
the Company, or at such other address as such party may designate by ten
(10)
days’ advance written notice to the other parties.
8. Severability. If
one or more provisions of this Agreement are held to be unenforceable under
applicable law, such provision shall be excluded from this Agreement and
the
balance of this Agreement shall be interpreted as if such provision were
so
excluded and shall be enforceable in accordance with its terms.
9. Entire
Agreement. This Agreement constitutes the entire
agreement among the parties hereto pertaining to the subject matter hereof
and
supersedes all prior agreements, term sheets, letters, discussions and
understandings of the parties in connection therewith.
10. Further
Assurances. Each party to this Agreement shall
execute all instruments and documents and take all actions as may be reasonably
required to effectuate this Agreement, whether before, concurrently with
or
after the consummation of the transactions contemplated hereby.
IN
WITNESS WHEREOF, the parties have executed this Registration Rights Agreement
as
of the date first above written.
LANDBANK
GROUP, INC.
a
Delaware corporation
By: /s/
Eric Stoppenhagen
Name:
Eric Stoppenhagen
Its: Interim
President
LANDBANK
ACQUISITION, LLC,
a
California limited liability company
By:
Name:
Its:
EXHIBIT
A
SHARES
79,311,256
shares of Common Stock issued to Landbank Acquisition LLC on ________ __,
2007.
APPENDIX
D
October
23, 2007
Board
of
Directors
Landbank
Group, Inc.
Dear
Board of Directors,
Landbank
Acquisition, LLC, (“AcquisitionCo”) proposes to purchase Landbank, LLC,
(“OpCo”), from Landbank Group, Inc., (“HoldCo”, “Landbank” or the “Company”)
(the “Proposed Transaction”). The Proposed Transaction calls for (1) HoldCo to
transfer ownership of OpCo to AcquisitionCo, (2) HoldCo to issues new shares
to
AcquisitionCo in an amount that will increase AcquisitionCo’s current position
in HoldCo of approximately fifty-five percent (55%) to approximately ninety-five
percent (95%), (3) AcquisitionCo to provide full indemnity to HoldCo
for OpCo’s prior operations and liabilities, (4) OpCo to assign $500,000 in debt
to HoldCo owed to AcquisitionCo, (5) OpCo to retain approximately $500,000
in
debt owed to third parties and approximately $2.5 million in debt owed to
AcquisitionCo, and (6) subsequent to the transaction HoldCo will seek to
be
acquired as a public shell.
You
have
requested our opinion as to whether the Proposed Transaction is fair, from
a
financial point of view, to the shareholders of Landbank (without giving
effect
to any impacts of the Proposed Transaction on any particular shareholder
other
than in their capacity as a shareholder).
In
arriving at our opinion we have, among other things:
|
1.
|
reviewed
and analyzed the terms of the Proposed
Transaction;
|
|
2.
|
reviewed
and analyzed available historical business and financial information
relating to Landbank, including (i) audited and unaudited financial
statements for the fiscal years ended December 31, 2005 and December
31,
2006;
|
|
3.
|
reviewed
and analyzed the inventory of properties currently owned by
Landbank;
|
|
4.
|
reviewed
and analyzed publicly-traded companies reasonably comparable to
Landbank;
|
|
5.
|
reviewed
and analyzed the industry in which Landbank operates;
and
|
|
6.
|
conversed
with the management team of Landbank regarding, amongst other
things, the history of the company, the Proposed Transaction,
and the outlook of the Company.
|
In
connection with our opinion we have assumed and relied upon, without assuming
any responsibility for or independently verifying, the accuracy and completeness
of all information supplied or otherwise made available to us by Landbank.
We
have further relied upon the assurances of representatives of the management
of
Landbank that they are unaware of any facts that would make the information
provided to us incomplete or misleading in any material respect. With respect
to
projected financial and operating data, we have assumed that they have been
reasonably prepared on bases reflecting the best currently available estimates
and judgments of the managements and staffs of Landbank, respectively, relating
to the future financial and operational performance of the Company. We have
not
made an independent evaluation or appraisal of the assets or liabilities
of
Landbank. In addition, we have not assumed any obligation to conduct, nor
have
we conducted any physical inspection of the properties or facilities of
Landbank. We have also assumed that the Proposed Transaction will be consummated
in accordance with the state terms without waiver of any of the conditions
precedent to the Proposed Transaction. We did not participate in the discussions
concerning the Proposed Transaction among Landbank and its
representatives.
Our
opinion relates solely to the fairness, from a financial point of view, to
the
shareholders of Landbank (without giving effect to any impacts of the Proposed
Transaction on any particular shareholder). Our advisory services and the
opinion expressed herein are provided for the information and assistance
of the
Board of Directors of Landbank in connection with the Proposed Transactions
and
our opinion does not constitute a recommendation to any holder of Landbank
common stock as to whether they should accept the related exchange under
the
Proposed Transaction. Our opinion does not address the relative merits of
the
Proposed Transaction as compared to any alternative business transaction
that
might be available to Landbank shareholders, nor does it address the underlying
business decision of Landbank to engage in the Proposed Transaction. We have
not
been asked to consider, and this opinion does not address, the tax consequences
of the Proposed Transaction to any particular shareholder of Landbank. We
are
not rendering any legal or accounting advice and understand Landbank is relying
on their legal counsel and accounting advisors in legal and accounting matters
in connection with the Proposed Transaction.
Our
opinion is rendered on the basis of the conditions and prospects, financial
and
otherwise, of Landbank as it has been represented to us as of the date hereof
or
as they were reflected in the materials and discussions described
above.
Based
upon and subject to the foregoing, it is our opinion that, as of the date
hereof, the Proposed Transaction is fair, from a financial point of view,
to the
shareholders of Landbank.
Very
truly yours,
Gemini
Valuation Services, LLC
/s/
Jim Dykstra
Jim Dykstra
President
APPENDIX
E
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
DC 20549
FORM
10-KSB
|
(MARK
ONE)
|
|
|
x
|
ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF
1934
|
|
|
For
the fiscal year ended December 31,
2006
|
|
OR
|
|
|
|
|
|
o
|
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:
LANDBANK
GROUP, INC.
(Name
of small business issuer in its charter)
|
Delaware
|
20-1915083
|
|
(State
or other jurisdiction of
incorporation
or organization)
|
(IRS
Employer
Identification
No.)
|
|
7030
Hayvenhurst Avenue, Van Nuys, California
|
91406
|
|
(Address
of principal executive offices)
|
(Zip
Code)
|
(818)
464-1614
(Issuer’s
telephone number)
Securities
registered pursuant to Section 12(b) of the Act: None
Securities
registered pursuant to Section 12(g) of the Act:
|
Title
of each class
|
Name
of each exchange on which registered
|
|
Common
Stock, $0.0001 Par Value
|
None
|
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 o No x
Check
if
there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained,
to
the best of registrant’s knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. x
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes
o No x
Issuer’s
revenues for its most recent fiscal year were $4,556,266.
The
aggregate market value of the voting and non-voting common equity held by
non-affiliates of the issuer, based upon the last available reported closing
price of the issuer’s common stock by a broker-dealer on the Gray Market was
approximately $28,613 (affiliates being defined, for these purposes only,
as
directors and executive officers of the issuer and holders of 5% or more
of the
issuer’s outstanding common stock).
There
were 9,835,331 shares of the issuer’s common stock issued and outstanding on
March 23, 2007.
DOCUMENTS
INCORPORATED BY REFERENCE
None
Transitional
Small Business Disclosure Format (Check one): Yes o; No x
TABLE
OF
CONTENTS
|
|
|
PAGE
|
|
PART
I.
|
|
|
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|
|
Item
1.
|
3
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|
|
Item
2.
|
10
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|
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Item
3.
|
12
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Item
4.
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12
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PART
II.
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Item
5.
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13
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Item
6.
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14
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Item
7.
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26
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|
Item
8.
|
46
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Item
8A.
|
46
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Item
8B.
|
46
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|
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PART
III.
|
|
|
|
|
|
|
|
Item
9.
|
46
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Item
10.
|
48
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Item
11.
|
52
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|
Item
12.
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53
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|
Item
13.
|
56
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|
Item
14.
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57
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|
|
|
|
PART
I
Business
Development:
Landbank
Group, Inc., ("Landbank" or the "Company") was incorporated in the State
of
Delaware as Camryn Information Services, Inc., on May 13, 1997. The Company
operated for a brief period of time before it ceased operations on February
25,
1999 when it forfeited its charter for failure to designate a registered
agent.
The Company remained dormant until 2004 when it renewed its operations with
the
filing of a Certificate of Renewal and Revival of Charter with the State
of
Delaware on October 29, 2004. On November 3, 2004, the Company filed a
Certificate of Amendment and the Company's name was formally changed from
Camryn
Information Services, Inc. to iStorage Networks, Inc. Such change became
effective on November 8, 2004. The Company subsequently changed its name
to
Landbank Group, Inc., on January 27, 2006, following the acquisition of
Landbank, LLC (see below).
Acquisition
of Landbank, LLC and Divestiture of Prior Operations
On
January 26, 2006, the Company acquired 100% of the membership interests in
Landbank, LLC, a California limited liability company, in exchange for shares
of
common stock of the Company. The exchange of shares for membership interests
was
treated as a reverse acquisition under the purchase method of accounting.
The
shares delivered in connection with the acquisition were transferred by the
four
former principal stockholders of the Company to the members of Landbank,
LLC in
exchange for the Company receiving all of the ownership interests in Landbank,
LLC and $140,000 in cash. Concurrently with the acquisition of Landbank,
LLC,
the Company divested itself of its wholly owned operating subsidiary, iStorage
Networks Group, Inc. ("iSNG") to Thomas Makmann, the Company's former CEO
and
one of the four former principal stockholders. The $140,000 in cash accompanied
the divestiture of iSNG. For further description of this transaction, see
Item 7
"Certain Relationships and Related Party Transactions." The former members
of
Landbank, LLC acquired approximately a 90% ownership interest in the Company.
Landbank, LLC, was formed in December 2004 but did not commence operations
until
the second quarter of 2005. It currently operates as a wholly owned subsidiary
of the Company. With the divestiture of iSNG and the acquisition of Landbank,
LLC, the Company now operates exclusively in the real estate marketplace.
It no
longer operates its former iStorage business. Future references in this
registration statement to the Company shall include Landbank and its operating
subsidiary, Landbank, LLC, unless the text specifically rejects such an
inclusive reference.
On
March
3, 2006, the Company by majority vote of its stockholders approved a 10:1
reverse split of its outstanding common stock. Taking into account the
preservation of round lot ownership, the split resulted in 9,829,647 outstanding
shares. As of September 30, 2006, such number was adjusted to 9,835,331
outstanding shares due to rounding. As of
said
date, the number of restricted shares of common stock issued and outstanding
is
8,829,447, 8,200,000 which are owned and controlled by the three (3) principal
stockholders set forth in Item 4 herein. All historical references to shares
and
per share prices in this registration statement have been adjusted to reflect
the 10:1 reverse split.
The
Company and/or any predecessor has not been and is not as of the date of
this
filing in the process of seeking a petition in bankruptcy, in receivership
or in
any similar proceeding.
Business
of Issuer:
From
November 2004 until December 2005, the Company as iStorage Networks, Inc.
was
engaged in the development of network storage solutions/Internet security
through its wholly owned operating subsidiary, iSNG. Unable to achieve projected
revenues from its operations, the Company consummated the acquisition of
Landbank, LLC, in exchange for stock of the Company. Since December 2005,
the
Company has not operated its former iStorage business. Since January 2006,
the
Company's sole operations have consisted of the operations of Landbank,
LLC.
Landbank
makes bulk acquisitions of parcels of land, primarily through the real property
tax lien foreclosure process. Such bulk acquisitions are divided into smaller
parcels for resale. The real property tax lien foreclosure process may take
the
form of either local government tax sales or sales by owners of tax-defaulted
parcels prior to a tax sale. Local government agencies responsible for
collecting real property taxes have the authority to force their collection
through tax sales. To collect their unpaid and overdue real property taxes,
some
government agencies conduct tax lien foreclosure auctions. At these foreclosure
auctions, the real property is sold and the high bidder receives a deed to
the
property. The opening bid amounts are usually equal to delinquent taxes,
interest and other costs. The process differs from state to state and even
county to county. Generally, however, properties acquired in this manner
are
deeded to the purchaser by the relevant government entity, without any
warranties of title. The Company therefore undertakes appropriate due diligence
prior to bidding, including obtaining title reports and/or conducting title
searches depending on the value of the property. In some counties, properties
sold in this manner are subject to a right of redemption, whereby the defaulting
owner has a certain number of days to redeem the property. In instances where
the Company acquires properties subject to such a right, we hold the property
in
inventory until the right has lapsed. If the right is exercised, the property
reverts to the defaulting owner, and we receive a return of our purchase
price
plus interest. In addition, in most counties, the purchaser is responsible
for
any eviction proceedings. The Company seeks to acquire unimproved land, however,
and to date has not had any exposure in this regard. Landbank considers various
criteria in terms of its land acquisitions, which include but are not limited
to, location, availability of utilities, proximity to water, geographic
desirability, and proximity of significant population centers. The current
focus
of Landbank is in the Western, Southwestern, and East Coast regions of the
United States.
Landbank
acquires properties "in-bulk" for resale purposes only and not with a view
toward long-term investment. Typically, the lead-time from date of acquisition
to date placed in Landbank channels of distribution is from three (3) to
seven
(7) months as surveys are made of the redefined parcels.
Landbank
resells the land it acquires through multiple distribution channels, some
more
traditional than others. They include the Internet, through eBay and Bid4Assets,
and leads developed by Landbank, its affiliates, and third-party wholesalers.
Landbank has found that use of the Internet allows it to market its inventory
at
a cost significantly lower than that of mainstream advertising. Landbank
employs
acquisition teams that research and buy acreage, lots, and houses in a number
of
states and in Mexico. To date, Landbank has acquired properties in Colorado,
Florida, Nevada, Oklahoma, New York, Pennsylvania, Texas, Michigan, New Mexico,
Arizona and Chihuahua, Mexico. The real property inventory of Landbank as
of December 31, 2006 was comprised of 39 different pre-unbundled tracts of
land.
The
Company has entered into royalty agreements with several marketing companies,
namely, John Beck's Amazing Profits, LLC ("JBAP"), John Alexander LLC, and
Jeff
Paul LLC. These companies are affiliates of the Company. Family Products,
LLC
("FPLLC") is the sole member of each of these marketing companies. FPLLC
is in
turn owned and controlled by two of the Company's principal stockholders,
Doug
Gravink and Gary Hewitt, who are directors and officers of the Company. These
marketing companies provide customer leads for Landbank's property sales
in
return for a royalty of 35% of the gross profit less acquisition costs realized
on the sale of any property. The term of each of these agreements is ten
years,
with the right of the Company to terminate after five years.
The
real
estate industry is a highly fragmented and regional business. There are
approximately 30,000 municipalities in the United States, each with its own
set
of property valuation criteria and regional regulations. As a result, the
majority of the Company's competitors that are engaged in acquiring properties
through the real property tax lien foreclosure process focus on specific
regions. One of the Company's strategies in differentiating itself has been
to
attempt to cross these regional boundaries and offer properties in as many
jurisdictions as possible. In time, as the Company becomes more familiar
with
state and local rules and regulations, it hopes to develop a nationwide
inventory of properties.
A
majority of the Company's competitors also rely primarily on the Internet
and
live auctions to resell their parcels. The Company devotes significant time
and
effort in the development of a distribution database as a strategy for further
differentiating itself from its competitors. This database has become a primary
source of buyers for the Company's properties.
The
Company believes that its principal challenge will be in identification and
acquisition of suitable properties. Since the bulk of the competition is
region-specific, the Company feels that by pursuing a broad based national
approach; it will continue to maintain a competitive advantage. Competitors
engaged in acquiring similar properties include National
Recreational Properties, LandAuction.com, Landwatch.com, and a number of
smaller
companies.
Certain
of the Company's property acquisitions are subject to the requirements of
the
Interstate Land Sales Full Disclosure Act of 1968, depending upon the specific
characteristics of the transaction. This Act mandates certain registration
and
disclosure requirements in connection with the development and sale of certain
subdivisions where the number of non-exempt lots exceeds a predetermined
threshold and development satisfies several pre-established criteria. The
applicability of this Act to a particular project can increase costs of doing
business and cause a delay in the Company's ability to market the subject
properties and/or to provide potential purchasers with a wider window in
which
to rescind offers to purchase. This could result in a surplus of properties
in
inventory, which could adversely affect the Company's business and results
of
operation.
The
total
number of Company employees is fifteen, all of whom are full-time
employees.
Risk
Factors:
The
Company's operations and its securities are subject to a number of substantial
risks, including those described below. If any of these or other yet unforeseen
risks actually occur, the Company's business, financial condition, and operating
results, as well as the trading price or value of its securities could be
materially adversely affected. No attempt has been made to rank these risks
in
the order of their likelihood or potential harm. In addition to those general
risks enumerated elsewhere, any purchaser of the Company's common stock should
also consider the following risk factors:
Risks
Related to the Company's Operations:
We
have a limited operating history and cannot guarantee
profitability.
The
Company acquired its current operations in January of 2006 through the purchase
of Landbank LLC. Landbank, LLC itself commenced operations during the second
quarter of 2005. At this stage, the Company has only a limited operating
history
upon which an evaluation of performance and future prospects can be made.
There
can be no assurance that the Company will be able to continue to generate
revenues in the future.
The
Company is subject to all of the business risks associated with a new
enterprise, including, but not limited to, the risk of unforeseen capital
requirements, lack of fully-developed products, failure of market acceptance,
failure to establish time proven business relationships, and a competitive
disadvantage vis-a-vis larger and more established companies.
We
may need to raise capital in the future, and if such capital is not available
on
acceptable terms, we may have to curtail or cease
operations.
The
Company's business is dependent in part on being able to acquire and make
available a broad selection of properties. Acquisition of these properties
requires significant capital expenditure. While the Company intends to generate
sufficient revenues in the future to fund our acquisitions, it is possible
that
we may need to raise additional capital. Consequently, we may be unable to
raise
sufficient additional capital on terms deemed acceptable. In that event,
the
Company may have to curtail or cease operations and/or limit the number of
properties maintained in inventory. This could have an adverse impact on
the
Company's ability to effectively compete with other companies, which are
able to
offer customers a broader range of properties. If additional funds are raised
through the issuance of debt securities or preferred stock, these securities
could have rights that are senior to the holders of the common stock, and
any
debt securities could contain covenants that would restrict the Company's
operations. In addition, if the Company raises funds by selling common stock
or
convertible securities, existing stockholders could face dilution of their
shares.
We
may be unable to identify or acquire suitable properties at a low cost, which
could affect our ability to generate revenues.
The
Company's ability to generate revenues is highly dependent on its ability
to
maintain low acquisition costs while offering a wide range of suitable
properties. There can be no assurance that the Company's acquisition teams
will
be successful in locating suitable properties on financially attractive
terms.
Competition
for properties may increase costs and reduce returns.
The
Company competes to acquire real property with individuals and other entities
engaged in similar activities. Many of our competitors have greater financial
resources, and thus, a greater ability to borrow funds and to acquire
properties. Competition for properties may reduce the number of suitable
acquisition opportunities available and may have the effect of increasing
acquisition costs thereby adversely impacting Company profits.
We
acquire a substantial number of our properties through the tax-lien foreclosure
process, and may therefore be subject to additional costs for eviction and/or
clearing title.
When
acquiring properties through the tax-lien foreclosure process, the property
is
deeded to the buyer by the relevant government entity without any warranties
as
to title, and in some instances, subject to a right of the original owner
to
redeem the property within a certain number of days. In addition, the buyer
of
the property remains responsible for any eviction of a prior owner who remains
in possession of the property. The majority of parcels that we acquire are
unimproved lots with no owner in possession, and we attempt to perform adequate
due diligence in connection with the purchase of each piece of property to
ensure that there are no material liens or encumbrances affecting title to
the
property. We cannot however guarantee that we will not be required to undertake
eviction or other proceedings in connection with properties purchased in
this
process,
or that we will not encounter undisclosed encumbrances. In the event such
a
situation arises, we may incur significant additional acquisition costs which
may adversely affect our net revenues and/or results of operations. In counties
where there is a right of redemption, we hold the property in inventory until
the right has lapsed. The Company does not currently acquire significant
amounts
of properties in counties where such rights exist, however, if we do, any
exercise of these rights could delay our ability to generate revenues from
these
properties.
We
may be unable to sell a property, if or when we decide to do so, which could
delay revenues needed to fund operations.
The
real
estate market is affected by many factors, such as general economic conditions,
availability of financing, interest rates, and other factors, including supply
and demand, that are beyond the Company's control. The Company cannot predict
whether it will be able to sell any property for the price or on the terms
that
it sets or whether any price or other terms offered by a prospective purchaser
would be acceptable. The Company cannot predict the length of time needed
to
find a willing purchaser and to close the sale of a property.
The
Company may be required to expend funds to correct defects or to make
improvements before a property can be sold. The Company cannot make any
assurance that it will have funds available to correct such defects or to
make
such improvements.
Our
principal stockholders have broad control over our
operations.
The
Company's principal stockholders beneficially own approximately 83% of the
issued and outstanding share capital of the Company. As a result, these
stockholders are able to exercise significant influence over the Company,
including the election of directors, amendments to the articles of incorporation
or by-laws of the Company, the approval of mergers or other business
combinations, and the sale or purchase of material assets. The interests
of
these stockholders in deciding these matters and the factors they consider
in
making such decisions could be different from the interests of the Company's
other stockholders.
We
may lose key personnel and/or be unable to maintain current relationships
with
affiliates upon which we depend.
The
Company's success depends to a significant degree upon the continued
relationship with certain of its affiliates and the contribution of its
executive management team. If any of the Company's executives decide to leave
the Company, we could lose access to important affiliate services and/or
acquisition or sales channels, which could adversely affect our operations
and/or financial condition.
We
are subject to general real estate risks.
The
Company is subject to risks generally associated with the ownership of real
estate, including:
|
·
|
changes
in general or local economic
conditions;
|
|
·
|
changes
in supply of or demand for similar or competing properties in the
area;
|
|
·
|
bankruptcies,
financial difficulties or lease defaults by
customers;
|
|
·
|
changes
in interest rates and availability of permanent mortgage financing
that
may render the sale of a property difficult or unattractive or
otherwise
reduce the returns to stockholders;
|
|
·
|
changes
in governmental rules, regulations, and fiscal policies, including
changes
in tax, real estate, environmental, and zoning
laws;
|
|
·
|
periods
of high interest rates and tight money
supply.
|
The
Company's operations can be negatively affected by the occurrence of any
of
these or other factors beyond the Company's control.
We
may be subject to litigation, which could divert substantial time and money
from
our business.
The
Company may be subject to claims from customers or other third parties. If
such
parties are successful, they may be able to obtain injunctive or other equitable
relief, which could effectively diminish the Company's ability to further
acquire, subdivide, and sell properties, and could result in the award of
substantial damages. Management may be required to devote substantial time
and
energy in defending any such claims.
Risks
Related to the Ownership of the Company's Stock:
There
is a limited market for the Company's common stock. If a substantial and
sustained market for the Company's common stock does not develop, the Company's
stockholders may have difficulty selling, or be unable to sell, their
shares.
The
Company's common stock is presently traded in the "Other" Over-the-Counter
or
"Gray Market" market on an unsolicited quote basis wherein trades are reported
by broker-dealers to their Self-Regulatory Organization ("SRO") which
distributes the trade data to market data vendors and financial websites.
Since
bids and offers are not collected in a central location, market transparency
and
best execution are more elusive. There is only a limited market for the
Company's common stock and there can be no assurance that this market will
be
maintained or broadened. If a substantial and sustained market for the Company's
common stock does not develop, the Company's stockholders may have difficulty
selling, or be unable to sell, their shares.
The
Company has recently become a reporting company in order to meet the current
requirements for quotation on the OTC Bulletin Board. The Company's stock
can be
quoted on the OTC Bulletin Board if, and only if, a broker-dealer files a
Form
15c-211 with the NASD to permit the Company's common stock to be quoted on
the
OTC Bulletin Board and the broker is granted the right to quote the Company's
stock.
Accordingly,
we cannot provide any assurance that we will achieve quotation of our stock
on
the OTC Bulletin Board.
Substantial
sales of the Company's common stock could cause stock price to
fall.
As
of
March 23, 2007, the Company had 9,835,331 shares of common stock outstanding
of
which approximately 8,829,447 shares are considered "restricted securities"
as
that term is defined under Rule 144 promulgated under the Securities Act
of 1933
("'33 Act"). These restricted shares are eligible for sale under Rule 144
at
various times. No prediction can be made as to the affect, if any, that the
sales of shares of common stock or the availability of such shares for sale
will
have on the market prices prevailing from time to time. Nevertheless, the
possibility that substantial amounts of the Company's common stock may be
sold
in the public market may adversely affect prevailing market prices for the
common stock and could impair the Company's ability to raise capital through
the
sale of its equity securities.
The
Company has a significant number of shares authorized but unissued. These
shares
may be issued without stockholder approval. Significant issuances of stock
would
dilute the percentage ownership of the Company's current stockholders and
could
likely have an adverse impact on the market price of the common
stock.
As
of
March 23, 2007, the Company had an aggregate of 90,164,669 shares of common
stock authorized, but unissued. The Company has reserved 3,000,000
shares for issuance under the Company's 2006 Stock Incentive Plan, and an
additional 10% has been reserved for issuances to consultants. All remaining
shares of common stock may be issued without any action or approval by the
Company's stockholders. Any such shares issued would further dilute the
percentage ownership of the Company's current stockholders and would likely
have
an adverse impact on the market price of the common stock.
The
Company does not intend to pay dividends in the near
future.
The
Company's board of directors determines whether to pay dividends on the
Company's issued and outstanding shares. The declaration of dividends will
depend upon the Company's future earnings, its capital requirements, its
financial condition, and other relevant factors. The Company's Board of
Directors does not intend to declare any dividends on the Company's shares
for
the foreseeable future. The Company anticipates that it will retain any earnings
to finance the growth of its business and for general corporate
purposes.
Our
securities are currently classified as a "Penny Stock" which may limit our
stockholders' ability to sell their securities.
The
price
of our common stock is currently below $5.00 per share, and is therefore
considered "penny stock" under Rule 3a51-1 of the '34 Act. As such, additional
sales practice requirements are imposed on broker-dealers who sell to persons
other than established customers and "accredited investors" as defined in
Rule
501 of Regulation D as promulgated under the '33 Act. The prerequisites required
by broker-dealers engaged in transactions involving "penny stocks" have
discouraged, or even barred, many brokerage firms from soliciting orders
for
certain low priced stocks.
With
respect to the trading of penny stocks, broker-dealers have an obligation
to
satisfy certain special sales practice requirements pursuant to Rule 15g-9
of
the '34 Act, including a requirement that they make an individualized written
suitability determination for the purchase and receive the purchaser's written
consent prior to the transaction.
Broker-dealers
have additional disclosure requirements as set forth in the Securities
Enforcement Act Remedies and Penny Stock Reform Act of 1990. These disclosure
requirements include the requirement for a broker-dealer, prior to a transaction
in a penny stock, to deliver a standardized risk disclosure document that
provides information about penny stocks and the risks of the penny stock
market.
Additionally,
broker-dealers must provide customers with current bid and offer quotations
for
penny stocks, the compensation payable to the broker-dealer and its salesperson
in the transaction, and the monthly account statements showing the market
value
of each penny stock held in a customer's account.
Accordingly,
the market liquidity of the Company's common stock and the ability of any
present and prospective stockholder-investors to sell their securities in
the
secondary market is limited due to the above penny stock regulations and
the
associated broker-dealer requirements.
The
Company's principal office is located in Van Nuys, California. The Company
shares this address, with its approximately 21,000 square feet of office
space,
at no charge to the Company with its affiliate Family Products, LLC ("FPLLC").
The Company estimates that it uses approximately 300 square feet of office
space
at this facility, with the estimated monthly rent value being approximately
$767, which the Company does not deem as material. Doug Gravink and Gary
Hewitt,
Directors and CEO and President respectively of the Company jointly own FPLLC.
FPLLC leases this space from 7030 Hayvenhurst, LLC ("7030"), under a five-year
lease, which expires in 2008. 7030 is owned by HG. Investments, LLC ("HGI").
HGI
is affiliated with the Company through common ownership. Doug Gravink and
Gary
Hewitt own 100% interest of HGI.
The
Company also operates a satellite office in American Fork, Utah, a processing
and acquisition facility in Alameda, California, and a sales office in
Phoenix,
Arizona. Space at the sales office is jointly leased with Mentoring of
America,
LLC ("Mentoring"), an affiliated company through common ownership. Mentoring
is
jointly owned by Doug Gravink
and Gary Hewitt, Directors and CEO and President respectively of the Company.
The lease term is thirty-two months and expires in 2008. The Company pays
a pro
rata share of the lease payments based upon the percentage of space it
occupies.
Mentoring, at its discretion, can instruct the Company not to remit cash
payment
for the monthly rent and instead apply the monthly rent fee to any outstanding
inter-company balance between the companies. During fiscal year 2005, the
Company recorded monthly rent fees totaling $12,570, which included June
2005
through December 2005. Rent expense totaled $22,226 for the twelve months
ended
December 31, 2006. The Company does not pay rent at either the American
Fork or
Alameda offices. The American Fork space is shared with Mentoring, with
estimated usage of approximately 200 square feet and an estimated cost,
if the
Company were required to pay rent, of approximately $360/month, which amount
the
Company believes immaterial. The Alameda office space is provided by John
Beck,
with an estimated usage of approximately 200 square feet and an estimated
cost,
if the Company were required to pay rent, of approximately $200/month,
which
amount the Company believes immaterial. The Company recently entered into
a
lease for its own space in Alameda, commencing January 1, 2007. The term
of this
lease is twenty-five months with an annual base rent of $25,245 for the
first
twelve months, and $28,392 thereafter.
Investments
in real estate or interests in real estate: The Company does not hold
any investments in real estate or interests in real estate. The Company acquires
real property for immediate resale only, and not for investment purposes.
The
Company purchases the properties for cash and does not operate or mortgage
any
of the properties with the sole exception of land in Pershing County, Nevada.
This property is the only property in inventory for which the book value
amounts
to ten percent (10%) or more of the total assets of the Company and its
consolidated subsidiary for the last fiscal year. The details of the mortgage
on
this property are set forth in Note 5 of the Notes to the audited
Consolidated Financial Statements for Landbank Group, Inc. and Subsidiary.
Acquired properties are recorded at cost and treated as inventory until sold.
Properties appear in inventory as lots or bulk tracts depending upon the
stage
of development. Set forth below are the inventories (rounded to the nearest
dollar) as of December 31, 2005, and December 31, 2006:
|
Period
Ended
|
Inventory
|
Inventory
Value
|
||||
|
Year
Ended 12/31/05
|
Individual
Lots
|
$
|
1,137,625
|
|||
|
(audited)
|
Bulk
Tracts
|
1,298,853
|
||||
|
|
$
|
2,436,478
|
||||
|
Period
Ended 12/31/06
|
Individual
Lots
|
$
|
2,047,541
|
|||
|
(audited)
|
Bulk
Tracts
|
1,189,722
|
||||
|
$
|
3,237,263
|
|||||
The
following is a summary of our inventories by geographic region and value
as of
December 31, 2006:
|
Actively
Marketed
|
Being
Prepared for Marketing
|
Total
|
|||||||
|
Arizona
|
$
|
29,614
|
$
|
-
|
$
|
29,614
|
|||
|
Colorado
|
314,128
|
-
|
314,128
|
||||||
|
Florida
|
19,600
|
-
|
19,600
|
||||||
|
Mexico
|
-
|
298,348
|
298,348
|
||||||
|
Michigan
|
15,919
|
-
|
15,919
|
||||||
|
Nevada
|
-
|
855,476
|
855,476
|
||||||
|
New
Mexico
|
60,285
|
-
|
60,285
|
||||||
|
Oklahoma
|
21,917
|
-
|
21,917
|
||||||
|
Pennsylvania
|
359,512
|
32,748
|
392,260
|
||||||
|
Texas
|
1,226,566
|
3,150
|
1,229,716
|
||||||
|
Total
|
$
|
2,047,541
|
$
|
1,189,722
|
$
|
3,237,263
|
|||
Investment
in real estate mortgages: The Company does not invest in real estate
mortgages.
Securities
of or interests in persons primarily engaged in real estate activities:
The Company does not have any investments in securities or interests in persons
primarily engaged in real estate activities.
From
time
to time, we may be involved in various claims, lawsuits or disputes with
third
parties, actions involving allegations of discrimination, or breach of contract
actions incidental to the operation of our business. However, we are not
currently involved in any litigation which we believe could have a materially
adverse effect on our financial condition or results of operations.
The
stockholders of the Company approved matters by written consent on the following
dates in the fourth quarter of 2006: November
9, 2006.
(1)
Pursuant to the action by written consent on November 9, 2006, the stockholders
approved the 2006 Stock Incentive Plan.
The
adoption of the 2006 Stock Incentive Plan was approved as follows:
|
Votes
For
|
Votes
Against
|
Abstentions
|
||
|
8,404,682
|
None
|
None
|
Market
Information
The
Company’s shares are presently listed for trading with the trading symbol “LBAN”
in the “Other” Over-the-Counter or “Gray Market” wherein trades are reported by
a broker-dealer to its Self-Regulatory Organization (“SRO”) which distributes
the trade data to market data vendors and financial websites. Since bids
and
offers are not collected in a central location, market transparency and best
execution are more problematic. Pursuant to SEC Rule 15c2-11, a Form 211
has
been filed by a Market Maker to actively publish quotes in the Company’s stock
in the OTC Bulletin Board.
Based
on
information obtained from Bloomberg, L.P., the offer and bid quotations for
the
common stock for the quarter ended December 31, 2004, each quarter of the
fiscal
year ended December 31, 2005 and the quarters ended March 31, 2006 and June
30,
2006 are set forth in the table below:
|
Quarter
Ended
|
Price
Range(4)
|
|||
|
|
High($)
|
Low($)
|
||
|
|
Quarter
ended 12/31/04
|
(1)
(2)
|
$
65.00
|
$
11.00
|
|
|
Quarter
ended 3/31/05
|
(3)
|
$
13.00
|
$
4.00
|
|
|
Quarter
ended 6/30/05
|
(3)
|
$
5.50
|
$
1.20
|
|
|
Quarter
ended 9/30/05
|
(3)
|
$
4.00
|
$
0.50
|
|
Quarter
ended 12/31/05
|
(3)
|
$
1.50
|
$
0.50
|
|
Quarter
ended 03/31/06
|
(3)
|
$
23.00
|
$
0.50
|
|
|
Quarter
ended 06/30/06
|
(3)
|
$
1.40
|
$
0.20
|
(1)
Quotation
information is not available prior to 12/09/04.
(2) Quotes
obtained under the symbol “LBKG”
(3)
Quotes
obtained under the symbol “LBAN”
(4)
All
prices reflect a 1-to-10 reverse stock split effected on June 30, 2006.
Currently,
there are no broker-dealers making an active market in the Company’s common
stock. The last reported trade occurred on February 20, 2007 at an execution
price of $0.02 per share, with the closing price remaining unchanged at $0.02
per share as of March 20, 2007. Since July 1, 2006, the stock has traded
in the
“Other OTC” or “Gray Market”. Accordingly, there are no closing bid and ask
prices for the common stock subsequent to June 30, 2006.
Holders
As
of
December 31, 2006, there were 18 registered holders of record of the
Company’s
Common
Stock.
Dividends
The
Company has not paid any cash dividends to date, and it has no intention
of
paying any cash dividends on its common stock in the foreseeable future.
The
declaration and payment of dividends is subject to the discretion of the
Company’s Board of Directors and to certain limitations imposed under the
California Statutes. The timing, amount and form of dividends, if any, will
depend upon, among other things, the Company’s results of operation, financial
condition, cash requirements, and other factors deemed relevant by the Board
of
Directors.
The
following discussion of our financial condition and results of operations
should
be read in conjunction with our financial statements and the notes to those
statements included elsewhere in this Form 10-KSB filing. In addition to
the historical financial information, the following discussion and analysis
contains forward-looking statements that involve risks and uncertainties.
Our
actual results may differ materially from those anticipated in these
forward-looking statements as a result of certain factors, including those
set
forth under "Risk Factors" and elsewhere in this registration
statement.
Overview
The
Company acquired Landbank, LLC and its real property operations in January
2006.
Concurrent with this acquisition, there was also a change in management and
principal ownership of the Company. Prior to its acquisition of Landbank,
LLC,
the Company was engaged, through its former operating subsidiary, iSNG, in
the
development of computer network storage solutions. From 1999 through November
2004, the Company was dormant, with no operations. It was only during the
period
from November 2004 to December 2005 that the Company, as iStorage Networks,
Inc., was operational. Landbank, LLC had only a limited operating history
prior
to being acquired by the Company, commencing operations in the second quarter
of
2005 and had no operations, assets or liabilities as of December 31,
2004.
Since
January 2006, the Company has been engaged solely in the business of acquiring
parcels of land in bulk, primarily through the real property tax lien
foreclosure process, and then reselling the land as individual parcels. The
Company’s business is asset intensive. Since the business is predicated on
identifying, repackaging, and selling properties, long-term investment decisions
do not play a significant role. Interest rate trends do not necessarily impact
the Company’s business; as such rates tend to produce a canceling effect in
terms of both the purchase and the resale prices.
We
currently have operations in ten states, and have also acquired properties
in
Mexico. We are not dependent on any single customer and no customer represents
over 10% of our total revenues.
The
objective of the Company is to achieve and sustain a manageable growth rate
that
will enable it to become a market leader in its field. Management believes
that
this objective can be achieved by expanding the Company’s “direct to consumer”
marketing efforts, developing networking responsiveness to assess buyer
satisfaction, and dedicating additional resources to acquisition efforts.
To
date, marketing efforts have confirmed that customers who buy have a recurring
need to buy for investment and/or resale purposes. Consequently, each customer
represents the potential for multiple sales. The fact that the Company operates
in several geographical regions tends to mitigate any seasonal or regional
factors that might impact its business operations.
The
Company finances its operations by loans from affiliated companies and revenues
generated from operations. From the commencement of operations in the second
quarter of 2005 through December 31 2006, the Company has net borrowings
from
its affiliates, including accrued interest of $2,640,875 and net revenues
totaling $5,820,579, of which $1,571,211 was gross profit, which is defined
as
revenue less the cost of the land, processing fees, merchant fees, dues and
taxes, and royalties. We derive revenue solely from the sale of the properties
we acquire.
We
incur
the following costs of revenue:
Operating
Expenses
Sales
and Marketing Expenses.
Our
sales and marketing expenses, excluding royalty agreements, consist primarily
of
personnel costs for our sales and marketing staff, in addition to commissions,
travel and lodging, marketing programs, and allocated facilities, and other
related overhead. We pay commissions as we recognize revenue and collect
receivables.
Acquisition
Team.
We have
a team of six acquisition specialists responsible for identifying and acquiring
suitable properties. Expenses consist primarily of personnel costs for team
members, in addition to commissions, travel and lodging, and other related
overhead. We pay commissions only upon completion of the purchase transaction,
including transfer of the deed. Due to the hiring of additional acquisition
specialists in February 2006, expenses in this category increased significantly
during fiscal year 2006.
General
and Administrative Expenses.
Our
general and administrative expenses consist of personnel costs for executives,
finance/accounting, and human resources as well as costs relating to travel
and
lodging, accounting/audit services, legal, and other professional
services.
Acquisition
Costs. We
have
acquired all of our properties to date, with the exception of certain parcels
in
Nevada, for cash. The average cost of properties that we acquire varies
depending on the size, location and other specific characteristics of each
property.
Income
Taxes.
Our
income tax expense includes the tax obligations for the multiple tax
jurisdictions in which we operate. The income tax expense is affected by
the
profitability of our operations in the jurisdictions in which we operate,
the applicable tax rate for these jurisdictions, and our tax policies. We
make
significant estimates in determining our consolidated income tax expense.
If our
actual amounts differ from these estimates, our provision for income taxes
could
be materially impacted.
Royalty
payments. We
derive
a significant number of customers from databases developed by certain of
our
affiliates. Pursuant to royalty agreements, we pay a royalty to these affiliates
equal to 35% of gross profits (less acquisition costs) earned by us on any
cash
sale of a property to a customer referred to us under these royalty agreements.
Our ability to draw on these customer databases significantly reduces our
direct
sales and marketing expenses.
In
the
future, the Company
intends
to continue to make use of its affiliate databases, but also hopes to develop
other distribution methods, particularly where the Company
acquires
a significant number of lots in one area. The Company
intends
to continue to expand into new states for the purchase of suitable
properties.
Operating
Results
Provided
below is a discussion of the financial condition and results of operations
relating to the Company’s current operations, which commenced in January 2006
with the Company’s acquisition of Landbank, LLC. Since that time the Company has
had no other operations. Therefore, the financial results for the year ended
December 31, 2005 only represents the results of operations of Landbank,
LLC. We
have not included any discussion of the results of the Company’s former
operations, as we do not believe such discussion would be
meaningful.
The
year ended December 31, 2006 compared to year ended December 31,
2005.
For
purposes of meaningful discussion, the consolidated financial results for
the
twelve-month period ended December 31, 2006 have been compared with the results
of operations for Landbank, LLC for the same period in 2005. Note that
significant changes are primarily a result of the fact that Landbank, LLC
did
not commence operations until the second quarter of 2005, and had only limited
operations during 2005.
Net
revenue for fiscal year 2006 was $4,556,266, an increase of $3,291,953 (260.4%)
from the $1,264,313 for fiscal year 2005. The significant increase in net
revenues, on a year-to-year basis, is primarily due to the Company’s limited
business operations during fiscal year 2005. As noted above, the Company
commenced operations during the second quarter of fiscal year 2005 but generated
revenue during the entire twelve-months of fiscal year 2006. The Company
sold
2,644 properties during fiscal year 2006, as compared to 768 properties for
all
of fiscal year 2005. In addition, the average selling prices increased in
2006
as compared to 2005. The average selling price of the properties sold during
fiscal year 2006 was approximately $1,723, an increase of $77 (4.7%) per
parcel
as compared to the average per lot selling price of approximately $1,646
during
fiscal year 2005.
The
following table details the number of properties sold, the state in which
the
properties sold were located, and the net revenue generated by the properties
sold for the years ended December 31, 2006 and 2005:
|
FY
2006
|
FY
2005
|
||||||||||||
|
Properties
Sold
|
Revenue
(000s)
|
Properties
Sold
|
Revenue
(000s)
|
||||||||||
|
Texas
|
1,588
|
$
|
2,059.5
|
701
|
$
|
1,174.5
|
|||||||
|
Oklahoma
|
464
|
646.1
|
67
|
89.8
|
|||||||||
|
Pennsylvania
|
504
|
1,211.3
|
-
|
-
|
|||||||||
|
New
Mexico
|
53
|
217.0
|
-
|
-
|
|||||||||
|
Florida
|
23
|
183.2
|
-
|
-
|
|||||||||
|
Colorado
|
12
|
239.2
|
-
|
-
|
|||||||||
|
2,644
|
$
|
4,556.3
|
768
|
$
|
1,264.3
|
||||||||
As
the
above table shows, the Company made significant progress in diversifying
its mix
of properties sold during fiscal year 2006, as it sold properties that were
located in six different states. During fiscal year 2005, the Company sold
properties that were located in only two different states, with approximately
91% of the properties sold being located in just one state (Texas). The
continued diversification of the Company’s mix of properties sold is an
important aspect of its business strategy, as a diversified portfolio of
properties to sell may allow the Company to significantly increase both sales
volume and net revenues while minimizing the risk of flooding a particular
market with properties and adversely affecting our customers ability to resell
their property at a profit.
Cost
of
goods sold during fiscal year 2006 was $3,315,400, which represents an
increase
of $2,381,432 (254.9%) over the $933,968 during fiscal year 2005. Cost
of goods
sold includes land costs, processing fees (deeding fees and transaction
fees),
merchant fees, dues and taxes (property owner’s fees and property taxes), sales
commissions (5% of gross sale amount), and royalties paid to an affiliate
for
sales resulting from leads generated from their customer database (35%
of gross
profits on the sale of properties relating to leads provided from their
database
- see note 11 in the accompanying notes to the financial statements). For
the
fiscal year ended December 31, 2006, the significant increase in cost of
goods
sold, as compared on a year-to-year basis, is due primarily to the fact
that the
Company had limited operations during fiscal year 2005. The Company sold
2,644
properties during fiscal year 2006 as compared to only 768 properties for
all of
fiscal year 2005. Land costs, which represent the single largest direct
cost,
totaled $2,099,652 during fiscal year 2006, or approximately $794 per property
sold. During fiscal year 2005, land costs were $640,529, or approximately
$834
per property sold. Royalties paid to an affiliate, which is the Company’s second
largest direct cost, totaled $668,159 during fiscal year 2006, an increase
of
$490,262 from the $177,897 incurred during fiscal year 2005. As a percentage
of
net revenue, royalties paid to an affiliate were 14.7% during fiscal year
2006,
a slight increase from the 14.1% during fiscal year 2005. The Company’s other
direct costs are detailed in the table below.
The
following table summarizes cost of goods sold for the years ended December
31,
2006 and 2005:
|
FY
2006
|
FY
2005
|
||||||||||||
|
Total
$ (000s)
|
As
% of Net Revenue
|
Total
$ (000s)
|
As
% of Net Revenue
|
||||||||||
|
Cost
of goods sold:
|
|||||||||||||
|
Land
costs
|
$
|
2,099.6
|
46.1
|
%
|
$
|
640.5
|
50.7
|
%
|
|||||
|
Royalties
to affiliate
|
668.1
|
14.7
|
%
|
177.9
|
14.1
|
%
|
|||||||
|
Merchant
fees
|
112.3
|
2.5
|
%
|
24.9
|
2.0
|
%
|
|||||||
|
Processing
fees
|
210.2
|
4.6
|
%
|
40.3
|
3.2
|
%
|
|||||||
|
Commissions
|
189.4
|
4.2
|
%
|
41.6
|
3.3
|
%
|
|||||||
|
Dues
and Taxes
|
35.8
|
0.6
|
%
|
8.7
|
0.6
|
%
|
|||||||
|
$
|
3,315.4
|
72.7
|
%
|
$
|
933.9
|
73.9
|
%
|
||||||
Cost
of
goods sold for fiscal year 2006, as measured as a percentage of net revenue,
decreased by approximately 1.5% as compared to fiscal year 2005, with
the
decrease due primarily to the reduction in land costs, as measured as
a
percentage of net revenue. Fiscal year 2006 land costs, as measured as
a
percentage of net revenue, decreased by approximately 9.1% as compared
to land
costs in fiscal year 2005, indicating an increase in the average mark-up
that
the Company was able to achieve on its properties. Both processing fees
and
sales commissions increased during fiscal year 2006, with the rise in
sales
commissions indicating that a slightly higher percentage of the properties
sold
were by commissioned sales people. The increase in processing fees is
the result
of higher transaction fees charged by outside agencies that process the
property
deeds and related paperwork. Dues and taxes were basically unchanged
on a
year-to-year basis, while royalties paid to an affiliate increased slightly
as a
result of the improved gross margin achieved by the Company in fiscal
year 2006,
which resulted in a slightly higher percentage of gross profit being
paid to the
affiliate.
Gross
profit for fiscal year 2006 was $1,240,866, an increase of $910,521 (275.6%)
as
compared to the $330,345 for fiscal year 2005. As a percentage of net
revenue,
gross profit for fiscal year 2006 was 27.2%, as compared to 26.1% for
fiscal
year 2005. As previously stated, the significant increase in gross profit
(as
measured in dollars), on an annual basis, is due to the Company’s limited
operations during fiscal year 2005.
Operating
expenses for fiscal year 2006 were $1,878,623, which represents an increase
of
$1,696,203 from the $182,420 that was incurred during fiscal year 2005.
Fiscal
year 2006 operating expenses included a one-time, non-cash charge of
$374,667 in
relation to the issuance of 624,445 shares of the Company’s common stock to
consultants (see notes 11 & 13 of the accompanying notes to the financial
statements). Excluding this non-recurring charge, operating expenses
for fiscal
year 2006 would have only been $1,503,956, which represents an increase
of
$1,321,536 from the $182,420 incurred during fiscal year 2005. The $1,321,536
increase in operating expenses primarily consists of a $581,467 increase
in
salaries and related expenses, a $196,687 increase in legal fees, a $159,723
increase in investor relation expenses, a $116,155 increase in professional
fees
to a related party, a $44,700 increase in accounting/audit fees, an $80,699
increase in travel expenses, and a $68,000 inventory impairment charge
(see note
6 of the accompanying notes to the financial statements).
Salaries
and related expenses increased due to an increase in headcount, with the
Company
going from four (4) employees as of December 31, 2005 to fifteen (15) as
of
December 31, 2006 and the amortization of $25,934 in option related compensation
to Directors of the Company (see note 14 of the accompanying notes to the
financial statements). The Company’s personnel consists of two (2)
accounting/finance employees, six (6) land acquisition specialists, two
(2)
customer support employees, and five (5) sales people. Neither the Company’s
Chief Executive Officer nor its President was paid a salary during fiscal
years
2005 and 2006. Legal fees increased primarily due to fees incurred in relation
to (1) the Company’s acquisition of Landbank, LLC, (2) its Form 10-SB filing
with the SEC, (3) a proposed private placement of the Company’s stock, and (4)
the preparation/review of the Company’s required filings as a public company.
The increase in investor relation expenses was the direct result of the
Company’s reverse merger that was completed in January 2006. Prior to the
reverse merger, the Company’s operating subsidiary, Landbank, LLC, was a private
entity whose stock was not traded on any exchange, and, therefore, did
not
require, nor incur, any investor relations or public reporting expenses.
Investor relations expenses incurred during fiscal year 2006 resulted from
the
Company’s agreement with Aurelius Consulting Group, Inc./RedChip Companies (see
note 13 of the accompanying notes to the financial statements) and transfer
agent fees incurred as a result of the Company’s 1 for 10 reverse stock split in
June 2006. The $126,805 of professional fees to a related party were fees
paid
to an accounting firm owned by Ray Gaytan (see note 11 of the accompanying
notes
to the financial statements), a Director of the Company. Mr. Gaytan’s firm
provided tax, accounting, and other professional fees to the Company during
fiscal year 2006 and served a critical role in managing/reviewing the Company’s
financial affairs after the death of the Company’s former Chief Financial
Officer in February 2006. Audit fees increased due to the fact that fiscal
year
2005 was the first year of operations for the Company’s operating subsidiary,
Landbank, LLC, and, therefore, the first time there were financial results
to
audit. The Company did not accrue any accounting/audit expenses during
fiscal
year 2005 but it did begin accruing audit expenses during fiscal year 2006.
Travel expenses increased as a result of the increase in the amount of
properties purchased during fiscal year 2006, which required the Company’s land
acquisition specialists to travel the country to inspect properties and
participate in tax liquidation sales.
The
following table details operating expenses for the years ended December
31, 2006
and 2005:
|
FY
2006
|
FY
2005
|
||||||
|
(000s)
|
(000s)
|
||||||
|
Salaries
and related taxes
|
$
|
617.9
|
$
|
36.4
|
|||
|
Legal
fees
|
220.7
|
24.0
|
|||||
|
Investor
relations expenses
|
159.7
|
-
|
|||||
|
Professional
fees - related party
|
126.8
|
-
|
|||||
|
Professional
fees
|
81.4
|
95.4
|
|||||
|
Accounting/audit
expenses
|
44.7
|
-
|
|||||
|
Travel
|
127.0
|
46.0
|
|||||
|
Office
rent - related party
|
22.2
|
12.6
|
|||||
|
Stock
issued to consultants
|
374.7
|
-
|
|||||
|
Inventory
impairment
|
68.0
|
-
|
|||||
|
Other
|
35.5
|
(32.0
|
)
|
||||
|
$
|
1,878.6
|
$
|
182.4
|
||||
The
Company incurred a one-time charge of $140,000 during fiscal year 2006
relating
to its acquisition of LandBank, LLC. This non-recurring charge represents
a cash
payment made by Landbank, LLC per the terms of the acquisition agreement
(see
note 2 of the accompanying notes to the financial statements). The another
significant non-recurring charge was in the amount of $235,000 payable
to Piping
Partners Holdings, LLC for their services relating to both the Company’s
acquisition of Landbank, LLC (see note 13 of the accompanying notes to
the
financial statements) and the filing of the Company’s Form 10SB with the
Securities and Exchange Commission.
Interest
expense for fiscal year 2006 totaled $184,121, an increase of $124,569 as
compared to interest expense of $59,552 for fiscal year 2005. Related party
interest for fiscal year 2006 totaled $129,986, an increase of $89,552 over
the
$40,434 of related party interest expense for fiscal year 2005. The significant
increase in related party interest expense, on a year-to-year basis, is the
result of (1) the Company’s limited operations, which resulted in related party
interest charges for only seven (7) months of 2005 versus twelve (12) months
in
fiscal year 2006, and (2) the Company borrowed an additional $859,677 from
its
affiliates during fiscal year 2006 that was subject to interest charges.
Interest expense on the loan for the Pershing County, Nevada properties totaled
$54,135 in fiscal year 2006, an increase of $35,017 from the $19,118 in fiscal
year 2005.
The
increase in annual interest expense on the bank loan is due entirely to
the fact
that the Company had twelve months of interest charges in fiscal year 2006
as
compared to only four months of charges in fiscal year 2005.
The
net
loss for fiscal year 2006 totaled $1,199,070, which represents a decrease
of
$1,281,443 as compared to the net income of $82,373 for fiscal year 2005.
The
significant decrease in net income, on a year-to-year basis, is the result
of
several factors, such as the increase in salaries and related expenses
of
$581,467 caused by an increase in headcount from four (4) employees as
of
December 31, 2005 to fifteen (15) as of December 31, 2006, the $140,000
non-recurring charge for the Landbank, LLC acquisition, the $374,667
non-recurring, non-cash charge for common stock issued to consultants for
services provided, the $235,000 non-recurring charge for services provided
by
Piping Partners Holdings, LLC, the $196,687 increase in legal fees, most
of
which is attributable to the Company’s acquisition of Landbank, LLC and its
subsequent filing requirements as a public company, the $159,723 in investor
relations expenses, the $68,000 inventory impairment charge, and the $160,855
in
related party professional fees and accounting/audit expenses. The Company’s
limited operations during fiscal year 2005 contributed to its significantly
lower costs, on a year-to-year basis, as compared to fiscal year 2006.
Another
critical factor driving the increase in expenses during fiscal year 2006
was the
Company’s status as a public company, which resulted in the Company incurring
charges (investor relations, audit expenses, legal fees relating to
securities/public company issues) that were non-existent in fiscal year
2005.
Excluding
the non-recurring charges mentioned above, the net loss for fiscal year
2006
would have been as follows:
|
FY
2006 net loss
|
$
|
1,199,070
|
||
|
Less
stock issued for services (non-cash)
|
(374,667
|
)
|
||
|
Less
fees to Piping Partners Holdings, LLC
|
(235,000
|
)
|
||
|
Less
merger-related fees
|
(140,000
|
)
|
||
|
Adjusted
FY 2006 net loss
|
$
|
449,403
|
The
adjusted net loss of $449,403 represents an average monthly net loss of
approximately $37,500, which the Company believes is a result of the sales
volume not having increased at the same rate as the increase in costs associated
with the Company’s expanded infrastructure. The Company believes that its
current infrastructure can support a sales volume significantly higher
than its
current sales volume with minimal, if any, increase in monthly
expenses.
Assets
and Liabilities
As
stated above under “Operating Results,” for meaningful comparison purposes, the
assets and liabilities of the Company as of December 31, 2006 based on its
consolidated financial statements for the twelve-month period then-ended,
have
been compared with the assets and liabilities as of December 31, 2005 as
set
forth in the 2005 audited financial statements for its operating subsidiary,
Landbank, LLC, as opposed to the assets and liabilities of the Company’s former
operations.
The
Company had a cash balance of $265,970 as of December 31, 2006, a decrease
of
$365,455 from the $631,425 on hand as of December 31, 2005. Cash used
by
operating activities was $1,623,661, with the Company’s net loss of $1,199,070
representing the majority of the usage. Non-cash expenses included in
the net
loss totaled $468,601 and were in relation to shares issued for
professional/consulting services, options granted to certain Directors
of the
Company, and the $68,000 inventory impairment charge (see notes 6, 11,
13, and
14 of the accompanying notes to the financial statements). Excluding
the
non-cash charges, the Company’s net loss represented $730,469 of the total
amount of cash used by the Company’s operating activities. Inventory purchases
$868,787, the reduction in deferred income $538,700, the elimination
of the
reserve for returns $26,148, and the increase in other receivables $8,542
accounted for the remaining $1,442,177 of the usage and were partially
offset by
an increase in accounts payable and accrued expenses $438,533 and a reduction
in
prepaid expenses $110,452. Cash provided by financing activities totaled
$1,258,206 and consisted of net borrowings from affiliated companies
in the
amount of $1,318,034 less the $59,828 in principal payments made on the
bank
loan. Netting the cash used by operations, which totaled $1,623,661,
with the
proceeds from financing activities, which totaled $1,258,206, results
in net
cash used of $365,455.
Inventory
was $3,237,263 as of December 31 2006, an increase of $800,785 (net of
the
inventory impairment charge) from the $2,436,478 that was held as of
December
31, 2005. The Company purchased significant new holdings in Pennsylvania,
Texas,
Florida, Arizona, New Mexico, and Colorado during fiscal year 2006. The
following table details the Company’s inventory holdings, as of December 31,
2006, by the state in which the properties are
located:
|
Actively
Marketed
|
Being
Prepared for Marketing
|
Total
|
|||||||
|
Arizona
|
$
|
29,614
|
$
|
-
|
$
|
29,614
|
|||
|
Colorado
|
314,128
|
-
|
314,128
|
||||||
|
Florida
|
19,600
|
-
|
19,600
|
||||||
|
Mexico
|
-
|
298,348
|
298,348
|
||||||
|
Michigan
|
15,919
|
-
|
15,919
|
||||||
|
Nevada
|
-
|
855,476
|
855,476
|
||||||
|
New
Mexico
|
60,285
|
-
|
60,285
|
||||||
|
Oklahoma
|
21,917
|
-
|
21,917
|
||||||
|
Pennsylvania
|
359,512
|
32,748
|
392,260
|
||||||
|
Texas
|
1,226,566
|
3,150
|
1,229,716
|
||||||
|
Total
|
$
|
2,047,541
|
$
|
1,189,722
|
$
|
3,237,263
|
|||
“Actively
Marketed” properties are properties that are ready for immediate resale, while
properties “Being Prepared for Marketing” are properties that are not currently
ready to be sold due to any number of reasons, such as, but not limited to,
zoning issues and title issues. In regard to the properties listed above
that
are categorized as “Being Prepared for Marketing”, the property in Mexico is
awaiting final deeding from the previous owner to the Company. The deeding
process in Mexico has proven to be a slow and tedious affair, and, based
on this
particular experience, the Company will carefully evaluate any future purchases
of property in Mexico. The Nevada property, which is also categorized as
“Being
Prepared for Marketing”, has been delayed from being actively marketed as the
Company awaits approval to subdivide the properties into smaller parcels.
This
property was originally purchased in fiscal year 2005 and is the only property
that the Company has not purchased for cash in full; this property is financed
by a bank loan (see note 5 of the accompanying notes to the financial
statements). The remaining properties that are categorized as “Being Prepared
for Marketing”, which are located in Pennsylvania and Texas, were purchased late
in fiscal year 2006 and are in the process of being deeded to the Company.
Based
on the Company’s operating results, and sales volume, for fiscal year 2006, the
$2,047,541 of properties that are ready for immediate resale equates to
approximately a one year supply of inventory.
The
Company recorded a $68,000 charge for inventory impairment as of
December 31, 2006 in relation to its quarterly review of its inventory
holdings
(the inventory totals listed above are net of the impairment charge). The
Company performs quarterly reviews of its inventory holdings (see note
1 of the
accompanying notes to the financial statements) in an attempt to ensure
that the
carrying, or recorded, cost of the inventory is not greater than its estimated
fair market value (“FMV”). In performing its most recent review, the Company
identified several properties within its Montgomery County, Texas holdings
that,
based on our review, had become impaired. The Company wrote down the value
of
these properties to their current estimated FMV, thereby incurring a $68,000
charge for inventory impairment.
As
previously mentioned, the Company is aggressively pursuing strategies to
diversify its real estate holdings. The Company believes that a broad,
diversified inventory of properties may provide more buying options to our
customer base while also attracting new customers who may not have previously
purchased property from the Company because the Company did not offer the
type
of property that these individuals were interested in buying. Also, the Company
believes that a diversified inventory portfolio may allow it to significantly
increase both sales volume and net revenue while minimizing the potential
to
flood a particular market, or geographical region, with properties, and,
in the
process, depress property values and adversely impact the ability of our
customers to resell their property at a profit.
Prepaid
expenses totaled $214,175 as of December 31, 2006, a decrease of $110,452
(34.0%)
from the $324,627 as of December 31, 2005. The decrease in prepaid assets
is due
entirely to the decrease in prepaid expenses related to the Company’s deferred
revenue. The Company follows FASB 66 - Accounting for Sales of Real Estate
(see
note 1 of the accompanying notes to the financial statements), and due to
the
Company’s 60-day refund policy, all sales transactions, and their related direct
expenses, are not recognized until after the expiration of the buyer’s 60-day
rescission period. Therefore, the Company records these direct expenses,
which
include royalties paid to an affiliate, sales commissions, merchant fees,
and
processing fees, as prepaid expenses until the 60-day buyer’s rescission period
has expired. Prepaid rent represents the first, and last, months rent on
the
Company’s new office in Alameda, California, and prepaid insurance relates to
both the Company’s general liability and directors & officers insurance
policies and are expensed over the one-year term of the policies. The following
table details prepaid expenses as of December 31, 2006 and 2005:
|
As
of 12/31/06
|
As
of 12/31/05
|
|||||
|
Rent
|
$
|
4,663
|
$
|
-
|
||
|
Insurance
|
13,417
|
-
|
||||
|
Merchant
fees
|
18,730
|
26,304
|
||||
|
Sales
commissions
|
31,530
|
43,841
|
||||
|
Royalties
to an affiliate
|
107,227
|
202,882
|
||||
|
Processing
fees
|
38,608
|
51,600
|
||||
|
$
|
214,175
|
$
|
324,627
|
|||
Current
liabilities totaled $3,968,360 as of December 31, 2006, an increase of
$1,000,726, or 33.7%, from the $2,967,634 as of December 31, 2005. The
following
table details current liabilities as of December 31, 2006 and 2005:
|
As
of 12/31/06
|
As
of 12/31/05
|
|||||
|
Accounts
payable
|
$
|
163,175
|
$
|
32,187
|
||
|
Accrued
expenses
|
330,448
|
22,905
|
||||
|
Due
to related parties
|
2,640,875
|
1,493,288
|
||||
|
Reserve
for returns
|
-
|
26,148
|
||||
|
Current
portion - bank loan
|
39,195
|
59,739
|
||||
|
Deferred
revenue
|
794,667
|
1,333,367
|
||||
|
$
|
3,968,360
|
$
|
2,967,634
|
|||
Accounts
payable consist of normal expenses incurred during the course of business,
and
the Company’s payables are current with regard to vendor terms. The increase in
accounts payable is due to the significant increase in the Company’s business
operations, as the Company has grown significantly since December 2005.
Three
vendors accounted for approximately $140,000 of the accounts payable balance,
with approximately $20,000 owed to the Company’s legal counsel and $120,000 owed
to two Property Owners Associations for dues on properties owned by the
Company
as of December 31, 2006. Accrued expenses consisted of $195,000 owed to
Piping
Partners Holdings, LLC (see note 13 of the accompanying notes to the financial
statements), $51,448 of accrued payroll and related expenses, and shares
to be
issued in the amount of $84,000 in relation to services provided by Aurelius
Consulting Group, Inc./RedChip Companies (see notes 10 and 13 of the
accompanying notes to the financial statements). The Company owed related
parties $2,640,875 as of December 31, 2006, which consisted of $1,986,069
borrowed from affiliated companies (see note 3 of the accompanying notes
to the
financial statements), accrued interest of $170,420 related to the funds
borrowed from affiliated companies, accounting/professional fees totaling
$36,009 owed to Gaytan, Baumblatt, and Leevan, a firm owned by a Director
of the
Company, and royalties owed to an affiliated company in the amount of $448,377
(see note 11 of the accompanying notes to the financial statements). The
$39,195
is the current portion of a bank loan for the Nevada properties (see note
5 of
the accompanying financial statements), while the deferred revenue relates
to
sales that have occurred as of December 31, 2006, but whose revenue has
not been
recognized as of December 31, 2006 in compliance with FASB 66 - Accounting
for
Sales of Real Estate (see note 1 of the accompanying notes to the financial
statements). Deferred revenue decreased due to fewer property sales in
the
months of November and December 2006 as compared to the same period in
fiscal
year 2005.
As
of
December 31, 2006, the Company owed $512,881 to a third party who financed
the
Company’s purchase of properties in Pershing County, Nevada, of which $39,195 is
classified as a current liability and $473,686 as a long-term liability.
The
properties were purchased in August 2005, and the amount owed as of December
31,
2005 was $572,709. The Company is required to make monthly payments of principal
and interest, with total principal payments of $59,828 and interest payments
of
$54,135 having been made by the Company during fiscal year 2006. As of December
31, 2006, the Company was current with payments due on this loan.
Liquidity
and Capital Resources
To
date,
the Company has funded the cost of the acquisition of new properties primarily
from net revenues received from sales of properties in inventory and from
funds
borrowed from affiliates. The Company has not incurred any debt in order
to
finance its operations, with the exception of amounts due to affiliates and
mortgages taken out for 19 sections of land acquired in Pershing County,
Nevada
in 2005 (see note 5 of the accompanying financial statements). These mortgages
bear interest at 10% per annum and mature September 1, 2015. The Company
anticipates selling these properties by December 31, 2007 and repaying these
mortgages in full.
While
the
Company believes that it can achieve its current objectives without raising
additional capital, additional capital would allow the Company to benefit
from
economies of scale in the real estate market and to shorten the lead-time
required to acquire new properties. Additional capital would also allow the
Company to acquire a more diversified portfolio of properties that the Company
believes would allow it to significantly increase both sales volume and net
revenue while minimizing the potential to flood a particular market, or
geographical region, with properties, and, in the process, depress property
values and adversely impact the ability of our customers to resell their
property at a profit. Toward that end, the Company has engaged consultants
to
advise it with respect to raising capital in the public and/or the private
marketplaces in the short and medium term. The Company believes, however,
that
based upon current plans, it will be able to fund its current operations
from
existing cash flows from operations for the next 12 months without raising
any
additional capital. To the extent that our cash flow from operations is
insufficient to fund our future activities, we may need to raise additional
funds through equity or debt financing. There can be no assurance that such
financings can be obtained on favorable terms, if at all.
Since
the
Company had revenues in both fiscal years 2006 and 2005, the Company plans
to
continue its current model, namely, an emphasis on carefully selecting
properties to acquire for resale while at the same time broadening its
customer/resale base. The Company has no plans to make any significant changes
in the number of its employees, although we do anticipate possibly increasing
the number of acquisition specialists as we expand into new states.
The
Company has no material commitments for capital expenditures as the Company
lets
marketplace conditions serve as its guide in terms of acquisition exposure.
There are no significant elements of income or loss arising from anything
other
than the Company’s continuing operations.
Critical
Accounting Estimates
The
Company's consolidated financial statements are prepared in conformity with
U.S.
generally accepted accounting principles, which require the use of estimates
and
assumptions regarding certain types of assets, liabilities, revenues, and
expenses. Management bases its estimates on historical experience and on
various
other assumptions that are believed to be reasonable under the circumstances.
The Company's estimates are based on the facts and circumstances available
at
the time; different reasonable estimates could have been used in the current
period, and changes in the accounting estimates used are likely to occur
from
period to period, which may have a material impact on the presentation of
the
Company's financial condition and results of operations. Actual results reported
by the Company may differ from such estimates. The Company reviews these
estimates periodically and reflects the effect of revisions in the period
that
they are determined. Note 1 of the Notes to our Consolidated Financial
Statements includes a summary of the accounting policies and methods used
in the
preparation of our consolidated accounts. Set forth below is a brief discussion
of what the Company believes to be the more critical judgment areas in the
application of the Company's accounting policies.
Impairment
of Inventory
The
Company's inventory consists of land parcels that are purchased for resale
purposes, and, except for special circumstances, do not normally remain in
inventory for a prolonged period of time. The Company records its inventory
at
the lower of cost or fair market value at the relevant balance sheet date.
The
Company reviews its inventory on a quarterly basis in an attempt to (1) identify
"problem" properties that may become impaired (difficult or impossible to
sell),
and (2) identify the financial impact, or impairment, to the recorded cost,
or
carrying value, of these properties. The Company attempts
to measure impairment on an item-by-item basis, but due to practical
limitations, the Company also measures impairment for a group of similar/related
properties. The Company considers properties to be similar/related if they
are
from the same subdivision and/or geographic region. For the purpose of this
discussion, the term "property" refers to a specific property or a group
of
similar/related properties.
The
Company recognizes inventory impairment at the time it's incurred, which
is at
the conclusion of the aforementioned quarterly reviews. Impairment charges,
or
write-downs to the recorded value of a property, occur when the estimated
fair
market value (FMV) of a property falls below the recorded, or carrying cost,
of
the associated property. The estimated FMV of a property is based on the
conditions that exist at the relevant balance sheet date, with consideration
being given to events after the relevant balance sheet date to the extent
that
they confirm conditions existing at or before the relevant balance sheet
date.
The Company's quarterly inventory impairment reviews require the exercise
of
judgment and take into consideration all relevant information available to
the
Company at the time the review is conducted. This periodic comparison of
comparable information determines if the value of our properties has become
impaired.
In
attempting to identify impaired properties, the Company begins by analyzing
recent trends in selling prices (EBay, Bid4Assets, real estate agent listings,
and the Company's sales records) to establish the estimated fair market value
(FMV) of a property and then compares the estimated FMV to the recorded value
of
the property to ensure that the estimated FMV has not fallen below the recorded
value. Should it be determined that the estimated FMV is less than the recorded
value, the Company records the appropriate impairment charge at that time,
as it
writes down the value of the property to it's estimated FMV, which does not
include any profit/markup.
The
Company also reviews its properties to identify problems/issues that may
reduce
a property's value, such as, but not limited to, zoning issues, right of
way
issues, and failed perc tests. Any of these problems, and similar problems
not
previously mentioned, can have an adverse affect on the estimated FMV of
a
property and necessitate a write-down of the recorded value of said property.
Should it be determined that such "problem" properties exist, the Company
records the appropriate impairment charge at that time, as it writes down
the
value of the property to it's estimated FMV, which, as previously mentioned,
does not include any profit/markup.
The
Company's return rates (the number of similar properties sold by the Company
that have been returned to the Company by the buyer) are also reviewed in
an
effort to gauge the favorability, or salability, of its properties. The purpose
of this review is to attempt to determine if certain properties are (1) not
in
favor with our Customer base, (2) overpriced, (3) saturated for that particular
market, or (4) problem properties for some reason unknown to the Company.
Should
it be determined that certain properties are experiencing abnormally high
return
rates and may be difficult to sell at an estimated FMV above their recorded
cost, the Company will record the appropriate impairment charge at that time,
as
it writes down the value of the property to its estimated FMV.
The
Company's impairment analysis is predicated on establishing an accurate estimate
of a property's FMV. This estimate of FMV is based on the analysis of known
trends, demands, commitments, events and uncertainties. As previously stated,
the Company reviews all relevant information at its disposal at the time
its
impairment analysis is being performed, and uses that data to assess what
impairment charges, if any, have been incurred. However, estimated FMV can
be
difficult to establish and is contingent on market conditions, such as, but
not
limited to, supply and demand, local and national economic factors, and interest
rates. Any change in these market conditions, and similar conditions not
previously mentioned, could have a material impact on estimated FMV, and,
therefore, future inventory impairment charges incurred by the Company. Since
there is not always a readily available source for land values, the weight
of
all measures, as described above, are considered by management in its impairment
analysis.
Off-balance
Sheet Arrangements
We
do not
have any off-balance sheet arrangements, as defined in Item 303 of Regulation
S-B.
LANDBANK
GROUP, INC. AND SUBSIDIARY
For
the Year Ended December 31, 2006
Table
of Contents
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28
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|
29
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29
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30
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31
|
|
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32
|
|
|
33
|
KABANI
& COMPANY, INC.
Certified
Public Accountants
6033
West
Century Blvd., Suite 810, Los Angeles, CA 90045
Phone
(310) 694-3590
Fax
(310)
410-0371
www.kabanico.com
Board
of
Directors and Stockholders of LandBank
Group, Inc. and subsidiary
We
have
audited the accompanying consolidated balance sheet of LandBank Group,
Inc. as
of December 31, 2006, and the related statements of operations, shareholders’
equity(Deficit), and cash flows for the year ended December 31, 2006.
These
financial statements are the responsibility of the Company's management.
Our
responsibility is to express an opinion on these financial statements
based on
our audit.
We
conducted our audit of these statements in accordance with the standards
of the
Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable assurance
about
whether the financial statements are free of material misstatement. An
audit
includes examining, on a test basis, evidence supporting the amounts
and
disclosures in the financial statements. An audit also includes assessing
the
accounting principles used and significant estimates made by management,
as well
as evaluating the overall financial statement presentation. We believe
that our
audit provide a reasonable basis for our opinion.
In
our
opinion, the financial statements referred to above present fairly, in
all
material respects, the financial position of LandBank Group, Inc. as
of December
31, 2006, and the results of its operations and cash flows for the year
ended
December 31, 2006 in conformity with accounting principles generally
accepted in
the United States of America.
The
Company’s consolidated financial statements are prepared using the generally
accepted accounting principles applicable to a going concern, which contemplates
the realization of assets and liquidation of liabilities in the normal
course of
business. The company has accumulated deficit of $1,116,697 at December
31, 2006
including a net loss of $1,199,070 during the year ended December 31,
2006.
These factors as discussed in Note 12 to the financial statements, raises
substantial doubt about the Company’s ability to continue as a going concern.
Management’s plans in regard to these matters are also described in Note 12. The
financial statements do not include any adjustments that might result
from the
outcome of this uncertainty.
Kabani
& Company, Inc.
CERTIFIED
PUBLIC ACCOUNTANTS
Los
Angeles, California
March
31,
2007
|
LandBank
Group, Inc. and Subsidiary
|
||||
|
Consolidated
Balance Sheet
|
||||
|
As
of December 31, 2006
|
||||
|
ASSETS
|
||||
|
Current
assets
|
||||
|
Cash
& cash equivalents
|
$
|
265,970
|
||
|
Inventory
- land parcels
|
3,237,263
|
|||
|
Other
receivable
|
8,542
|
|||
|
Prepaid
expenses
|
214,175
|
|||
|
Total
assets
|
$
|
3,725,950
|
||
|
LIABILITIES
AND SHAREHOLDERS' DEFICIT
|
||||
|
Current
liabilities
|
||||
|
Accounts
payable
|
$
|
163,175
|
||
|
Accrued
expenses
|
330,448
|
|||
|
Due
to related parties
|
2,640,875
|
|||
|
Loan
payable - current portion
|
39,195
|
|||
|
Deferred
income
|
794,667
|
|||
|
Total
current liabilities
|
3,968,360
|
|||
|
Loan
payable - non-current portion
|
473,686
|
|||
|
Shareholders'
deficit
|
||||
|
Common
stock, 100,000,000 shares authorized; $0.0001
|
||||
|
par
value; 9,835,331 issued and outstanding
|
984
|
|||
|
Additional
paid in capital
|
399,617
|
|||
|
Accumulated
deficit
|
(1,116,697
|
)
|
||
|
Total
shareholders' deficit
|
(716,096
|
)
|
||
|
Total
liabilities and shareholders' deficit
|
$
|
3,725,950
|
||
The
accompanying notes are an integral part of these consolidated financial
statements.
|
Landbank
Group Inc. and Subsidiary
|
|||||||
|
Consolidated
Statements of Operations
|
|||||||
|
For
The Years Ended December 31, 2006 and 2005
|
|||||||
|
2006
|
2005
|
||||||
|
Revenue,
net
|
$
|
4,556,266
|
$
|
1,264,313
|
|||
|
Cost
of revenue
|
|||||||
|
Direct
selling expenses
|
2,647,241
|
756,071
|
|||||
|
Royalty
to related party
|
668,159
|
177,897
|
|||||
|
Total
cost of sales
|
3,315,400
|
933,968
|
|||||
|
Gross
profit
|
1,240,866
|
330,345
|
|||||
|
Operating
expenses
|
|||||||
|
Rent,
related party
|
22,226
|
12,570
|
|||||
|
Professional
fees, related parties
|
126,805
|
10,650
|
|||||
|
Professional
fees
|
433,167
|
-
|
|||||
|
Inventory
impairment
|
68,000
|
-
|
|||||
|
Legal
fees
|
220,693
|
24,006
|
|||||
|
Directors
and officers compensation
|
83,049
|
-
|
|||||
|
General
& administrative expenses
|
924,683
|
135,194
|
|||||
|
Total
operating expenses
|
1,878,623
|
182,420
|
|||||
|
Income
(loss) from operations
|
(637,757
|
)
|
147,925
|
||||
|
Other
expenses
|
|||||||
|
Merger-related
costs
|
(140,000
|
)
|
-
|
||||
|
Professional
fees
|
(235,000
|
)
|
|||||
|
Interest
expense - bank
|
(54,135
|
)
|
(19,118
|
)
|
|||
|
Interest
expense - related parties
|
(129,986
|
)
|
(40,434
|
)
|
|||
|
Total
other expenses
|
(559,121
|
)
|
(59,552
|
)
|
|||
|
Income
(loss) before income taxes
|
(1,196,878
|
)
|
88,373
|
||||
|
Provision
for income taxes
|
2,192
|
6,000
|
|||||
|
Net
income (loss)
|
$
|
(1,199,070
|
)
|
$
|
82,373
|
||
|
Basic
and diluted weighted average number
|
|||||||
|
of
common stock outstanding
|
9,627,872
|
8,200,000
|
|||||
|
Basic
and diluted net income (loss) per share
|
$
|
(0.12
|
)
|
$
|
0.01
|
||
Basic
and diluted weighted average shares of common stock outstanding are the
same
because the
effect of dilutive securities is anti-dilutive.
The
accompanying notes are an integral part of these consolidated financial
statements.
|
LandBank
Group, Inc. and Subsidiary
|
||||||||||||||||
|
Consolidated
Statements of Shareholders' Equity (Deficit)
|
||||||||||||||||
|
As
of December 31, 2006
|
||||||||||||||||
|
Additional
|
Retained
|
|||||||||||||||
|
Common
Stock
|
Paid
in
|
Earnings
|
Shareholders'
|
|||||||||||||
|
Shares
|
Amount
|
Capital
|
(Deficit)
|
Equity
(Deficit)
|
||||||||||||
|
Balance
as of January 1, 2005
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
|||||||
|
Shares
issued per merger
|
8,200,000
|
820
|
(820
|
)
|
-
|
-
|
||||||||||
|
Net
income for the year ended December 31, 2005
|
-
|
-
|
-
|
82,373
|
82,373
|
|||||||||||
|
Balance
as of December 31, 2005
|
8,200,000
|
820
|
(820
|
)
|
82,373
|
82,373
|
||||||||||
|
Recapitalization
|
1,005,200
|
101
|
(101
|
)
|
-
|
-
|
||||||||||
|
Shares
issued to consultants
|
624,445
|
62
|
374,605
|
-
|
374,667
|
|||||||||||
|
Shares
issued for rounding up for split
|
5,686
|
1
|
(1
|
)
|
-
|
-
|
||||||||||
|
Amortization
of options granted to Directors
|
-
|
-
|
25,934
|
-
|
25,934
|
|||||||||||
|
Net
loss for the year ended December 31, 2006
|
-
|
-
|
-
|
(1,199,070
|
)
|
(1,199,070
|
)
|
|||||||||
|
Balance
as of December 31, 2006
|
9,835,331
|
$
|
984
|
$
|
399,617
|
$
|
(1,116,697
|
)
|
$
|
(716,096
|
)
|
|||||
The
accompanying notes are an integral part of these consolidated financial
statements.
|
LandBank
Group, Inc. and Subsidiary
|
|||||||
|
Consolidated
Statements of Cash Flows
|
|||||||
|
For
the Years Ended December 31, 2006 and 2005
|
|||||||
|
|
|
||||||
|
2006
|
2005
|
||||||
|
Cash
flows from operating activities:
|
|
|
|||||
|
Net
income (loss)
|
$
|
(1,199,070
|
)
|
$
|
82,373
|
||
|
Adjustments
to reconcile net income (loss) to net cash
|
|||||||
|
used
in operating activities:
|
|||||||
|
Shares
issued for service
|
374,667
|
-
|
|||||
|
Amortization
of options granted to Directors
|
25,934
|
-
|
|||||
|
Inventory
Impairment
|
68,000
|
-
|
|||||
|
Changes
in current assets and liabilities:
|
|||||||
|
(Increase)
decrease in current assets
|
|||||||
|
Inventory
- land parcels
|
(868,787
|
)
|
(2,436,478
|
)
|
|||
|
Other
receivable
|
(8,542
|
)
|
-
|
||||
|
Prepaid
expenses
|
110,452
|
(324,627
|
)
|
||||
|
Increase
(decrease) in current liabilities
|
|||||||
|
Accounts
payable
|
130,990
|
32,187
|
|||||
|
Accrued
expenses
|
307,543
|
22,905
|
|||||
|
Reserve
for returns
|
(26,148
|
)
|
26,148
|
||||
|
Deferred
income
|
(538,700
|
)
|
1,333,367
|
||||
|
Total
adjustments
|
(424,591
|
)
|
(1,346,498
|
)
|
|||
|
Net
cash used in operating activities
|
(1,623,661
|
)
|
(1,264,125
|
)
|
|||
|
Cash
flows from financial activities
|
|||||||
|
Due
to related parties
|
1,318,034
|
1,322,841
|
|||||
|
Repayment
of loans
|
(59,828
|
)
|
572,709
|
||||
|
Net
cash provided by financial activities
|
1,258,206
|
1,895,550
|
|||||
|
Net
change in cash and cash equivalents
|
(365,455
|
)
|
631,425
|
||||
|
Cash
and cash equivalents - beginning balance
|
631,425
|
-
|
|||||
|
Cash
and cash equivalents - ending balance
|
$
|
265,970
|
$
|
631,425
|
|||
|
Supplemental
disclosure of cash flows information:
|
|||||||
|
Taxes
paid
|
$
|
8,192
|
$
|
-
|
|||
|
Interest
paid
|
$
|
54,135
|
$
|
19,118
|
|||
The
accompanying notes are an integral part of these consolidated financial
statements.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
1.
Nature
of
business and significant accounting policies:
Nature
of business:
Landbank
Group, Inc., formerly known as iStorage Network, Inc. (“iStorage”), formerly
known as Camryn Information Services, Inc, was incorporated under the laws
of
the State of Delaware on May 13, 1997.
On
January 26, 2006, iStorage issued 8,200,000 shares of restricted stock
(post-split) in exchange for all of the assets and liabilities of Landbank,
LLC,
a company organized in the State of California in December 2004, and $140,000
in
cash. iStorage changed its name to Landbank Group, Inc. The former members
of
Landbank, LLC became approximately 90% owners of the Company.
The
exchange of shares with Landbank, LLC was accounted for as a reverse acquisition
under the purchase method of accounting since the stockholders of Landbank,
LLC
obtained control of the consolidated entity (collectively, “the Company”).
Accordingly, the merger of the two companies was recorded as a recapitalization
of Landbank, LLC, where as Landbank, LLC was treated as the continuing
entity.
The historical results for the years ended December 31, 2006 include Landbank,
LLC, and Landbank Group, Inc. (from the acquisition date) while the historical
results for the years ended December 31, 2005 include only Landbank, LLC.
The
financial statements of the legal acquirer (the Company) are not significant;
therefore, no pro forma financial information is being submitted.
The
Company makes bulk acquisitions of parcels of land, and resells the land
as
individual parcels. The Company seeks to acquire a majority of its land
“in-bulk” through the real property tax lien foreclosure process, either at
local government tax sales, directly from local government entities having
acquired property at tax sales, or directly from owners of tax-defaulted
parcels
prior to tax sale.
The
types
of real estate acquired and sold by the Company include undeveloped acreage,
houses, and lots. These parcels are marketed nationwide. To date, the Company
has acquired properties in Arizona, Colorado, Florida, New Mexico, Nevada,
Oklahoma, New York, Pennsylvania, Texas, and in the State of Chihuahua,
Mexico.
The
Company resells the land as individual parcels through multiple distribution
channels, including Internet sales and leads developed by the Company,
its
affiliates, or third party vendors. The Company also uses the Internet
to market
its properties.
The
Company shares its office space with its affiliates.
The
Company’s principal office is located in Van Nuys, California. The property is
leased from a real estate company related to the Company by common ownership
under a five-year lease that expires in 2008.
The
Company also has a satellite office in American Fork, Utah, a processing
and
acquisition office in Alameda, California, and a sales office in Phoenix,
Arizona. Office space at both the American Fork and Phoenix locations are
shared
with its affiliates. The Alameda office space is provided by one of the
directors of the Company.
Summary
of significant accounting policies
The
following summary of significant accounting policies used in the preparation
of
these consolidated financial statements is in accordance with generally
accepted
accounting principles.
Principles
of Consolidation
The
consolidated financial statements consist of the accounts of Landbank Group,
Inc. (“Parent”) and its wholly owned subsidiary Landbank, LLC, a California
Limited Liability Company (collectively “The Company”). All material
inter-company transactions have been eliminated in consolidation.
Cash
and cash equivalents
For
purposes of the statement of cash flows, cash equivalents include all highly
liquid debt instruments with original maturities of ninety days or less
which
are not securing any corporate obligations.
Concentration
The
Company maintains its cash in bank deposit accounts, which, at times, may
exceed
federally insured limits. The Company has not experienced any losses in
such
accounts.
Inventory
The
Company’s inventory consists of land parcels that are purchased for resale
purposes, and, except for special circumstances, do not normally remain
in
inventory for a prolonged period of time. The Company records its inventory
at
the lower of cost or fair market value at the relevant balance sheet date.
The
Company reviews its inventory on a quarterly basis in an attempt to (1)
identify
“problem” properties that may become impaired (difficult or impossible to sell),
and (2) identify the financial impact, or impairment, to the recorded cost,
or
carrying value, of these properties. The Company attempts to measure impairment
on an item-by-item basis, but due to practical limitations, the Company
also
measures impairment for a group of similar/related properties. The Company
considers properties to be similar/related if they are from the same subdivision
and/or geographic region. For the purpose of this discussion, the term
“property” refers to a specific property or a group of similar/related
properties.
The
Company recognizes inventory impairment at the time it’s incurred, which is at
the conclusion of the aforementioned quarterly reviews. Impairment charges,
or
write-downs to the recorded value of a property, occur when the estimated
fair
market value (FMV) of a property falls below the recorded, or carrying
cost, of
the associated property. The estimated FMV of a property is based on the
conditions that exist at the relevant balance sheet date, with consideration
being given to events after the relevant balance sheet date to the extent
that
they confirm conditions existing at or before the relevant balance sheet
date.
The Company’s quarterly inventory impairment reviews require the exercise of
judgment and take into consideration all relevant information available
to the
Company at the time the review is conducted. This periodic comparison of
comparable information determines if the value of our properties has become
impaired.
In
attempting to identify impaired properties, the Company begins by analyzing
recent trends in selling prices (EBay, Bid4Assets, real estate agent listings,
and the Company’s sales records) to establish the estimated fair market value
(FMV) of a property and then compares the estimated FMV to the recorded
value of
the property to ensure that the estimated FMV has not fallen below the
recorded
value. Should it be determined that the estimated FMV is less than the
recorded
value, the Company records the appropriate impairment charge at that time,
as it
writes down the value of the property to it’s estimated FMV, which does not
include any profit/markup.
The
Company also reviews its properties to identify problems/issues that may
reduce
a property’s value, such as, but not limited to, zoning issues, right of way
issues, and failed perc tests. Any of these problems, and similar problems
not
previously mentioned, can have an adverse affect on the estimated FMV of
a
property and necessitate a write down of the recorded value of said property.
Should it be determined that such “problem” properties exist, the Company
records the appropriate impairment charge at that time, as it writes down
the
value of the property to it’s estimated FMV, which, as previously mentioned,
does not include any profit/markup.
The
Company’s return rates (the number of similar properties sold by the Company
that have been returned to the Company by the buyer) are also reviewed
in an
effort to gauge the favorability, or salability, of its properties. The
purpose
of this review is to attempt to determine if certain properties (1) are
not in
favor with our Customer base, (2) are over priced, (3) the particular market
for
that property is saturated, or (4) are problem properties for some reason
unknown to the Company. Should it be determined that certain properties
are
experiencing abnormally high return rates and may be difficult to sell
at an
estimated FMV above their recorded cost, the Company will record the appropriate
impairment charge at that time, as it writes down the value of the property
to
it’s estimated FMV.
The
Company’s impairment analysis is predicated on establishing an accurate estimate
of a property’s FMV. This estimate of FMV is based on the analysis of known
trends, demands, commitments, events and uncertainties. As previously stated,
the Company reviews all relevant information at its disposal at the time
its
impairment analysis is being performed, and uses that data to assess what
impairment charges, if any, have been incurred. However, estimated FMV
can be
difficult to establish and is contingent on market conditions, such as,
but not
limited to, supply and demand, local and national economic factors, and
interest
rates. Any change in these market conditions, and similar conditions not
previously mentioned, could have a material impact on estimated FMV, and,
therefore, future inventory impairment charges incurred by the Company.
Since
there is not always a readily available source for land values, the weight
of
all measures, as described above, are considered by management in its impairment
analysis.
During
the year ended December 31, 2006, the Company recorded an inventory impairment
charge of $68,000 in relation to the write-down of the carrying, or recorded,
cost of properties owned by the Company in Montgomery County, Texas.
As a
result of the Company’s review for the quarter ending December 31, 2006, several
groups of properties within its Montgomery County, Texas holdings were
identified as impaired due to zoning issues, title issues, the poor quality
of
the property, or a combination of the three. As a result, the Company’s estimate
of the fair market value (“FMV”) of these properties was significantly lower
than their recorded cost, so an impairment charge of $68,000 was recorded
to
bring the carrying cost of these properties in line with their current
estimated
FMV.
Income taxes
The
Company utilizes SFAS No. 109, “Accounting for Income Taxes,” which requires the
recognition of deferred tax assets and liabilities for the expected future
tax
consequences of events that have been included in the financial statements
or
tax returns. Under this method, deferred income taxes are recognized for
the tax
consequences in future years of differences between the tax bases of assets
and
liabilities and their financial reporting amounts at each period end based
on
enacted tax laws and statutory tax rates applicable to the periods in which
the
differences are expected to affect taxable income. Valuation allowances
are
established, when necessary, to reduce deferred tax assets to the amount
expected to be realized.
Use
of estimates
The
preparation of financial statements in conformity with generally accepted
accounting principles in the United States (“GAAP”) requires management to make
certain 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. Actual results could differ from those estimates.
Significant estimates primarily relate to unsettled transactions and events
as
of the date of the financial statements.
Recognition
of revenue and expenses
The
Company follows FASB 66 - Accounting for Sales of Real Estate. Substantially
all
of the Company’s land sales are all-cash transactions. The Company also had a
small, insignificant number of financing transactions through December
31, 2006.
Because the Company’s policy for the all-cash transactions is to allow the buyer
60 days to rescind his real estate purchase, and because the Company does
not
issue the deed of trust on a financing sale until the note is paid in full,
the
deposit method of accounting is used. Under the deposit method, revenues
and
their related expenses, including inventory, are not recognized until the
end of
the buyer’s 60-day rescission period, for the all-cash sales, and at the time
the note is paid in full for the financing transaction (also see note
4).
Issuance
of shares for service
The
Company accounts for the issuance of equity instruments to acquire goods
and
services based on the fair value of the goods and services or the fair
value of
the equity instrument at the time of issuance, whichever is more reliably
measurable.
Segment
reporting
Statement
of Financial Accounting Standards No. 131 ("SFAS 131"), "Disclosure about
Segments of an Enterprise and Related Information" requires use of the
"management approach" model for segment reporting. The management approach
model
is based on the way a company's management organizes segments within the
company
for making operating decisions and assessing performance. Reportable segments
are based on products and services, geography, legal structure, management
structure, or any other manner in which management disaggregates a company.
SFAS
131 has no effect on the Company's financial statements as substantially
all of
the Company's operations are conducted in one industry segment.
Recent
pronouncements
In
February 2006, FASB issued SFAS No. 155, “Accounting for Certain Hybrid
Financial Instruments”. SFAS No. 155 amends SFAS No 133, “Accounting for
Derivative Instruments and Hedging Activities”, and SFAS No. 140, “Accounting
for Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities”. SFAS No. 155, permits fair value remeasurement for any hybrid
financial instrument that contains an embedded derivative that otherwise
would
require bifurcation, clarifies which interest-only strips and principal-only
strips are not subject to the requirements of SFAS No. 133, establishes
a
requirement to evaluate interest in securitized financial assets to identify
interests that are freestanding derivatives or that are hybrid financial
instruments that contain an embedded derivative requiring bifurcation,
clarifies
that concentrations of credit risk in the form of subordination are not
embedded
derivatives, and amends SFAS No. 140 to eliminate the prohibition on the
qualifying special-purpose entity from holding a derivative financial instrument
that pertains to a beneficial interest other than another derivative financial
instrument. This statement is effective for all financial instruments acquired
or issued after the beginning of the Company’s first fiscal year that begins
after September 15, 2006. SFAS No. 155 is not expected to have a material
effect
on the consolidated financial position or results of operations of the
Company.
In
March
2006 FASB issued SFAS 156 ‘Accounting for Servicing of Financial Assets’ this
Statement amends FASB Statement No. 140, Accounting for Transfers and Servicing
of Financial Assets and Extinguishments of Liabilities, with respect to
the
accounting for separately recognized servicing assets and servicing liabilities.
This Statement:
| 1. |
Requires
an entity to recognize a servicing asset or servicing liability
each time
it undertakes an obligation to service a financial asset by entering
into
a servicing contract.
|
| 2. |
Requires
all separately recognized servicing assets and servicing liabilities
to be
initially measured at fair value, if practicable.
|
| 3. |
Permits
an entity to choose ‘Amortization method’ or ‘Fair value measurement
method’ for each class of separately recognized servicing assets and
servicing liabilities.
|
| 4. |
At
its initial adoption, permits a one-time reclassification of
available-for-sale securities to trading securities by entities
with
recognized servicing rights, without calling into question the
treatment
of other available-for-sale securities under Statement 115, provided
that
the available-for-sale securities are identified in some manner
as
offsetting the entity’s exposure to changes in fair value of servicing
assets or servicing liabilities that a servicer elects to subsequently
measure at fair value.
|
| 5. |
Requires
separate presentation of servicing assets and servicing liabilities
subsequently measured at fair value in the statement of financial
position
and additional disclosures for all separately recognized servicing
assets
and servicing liabilities.
|
This
Statement is effective as of the beginning of the Company’s first fiscal year
that begins after September 15, 2006. Management believes that this statement
will not have a significant impact on the consolidated financial
statements.
In
September 2006, FASB issued SFAS 157 ‘Fair Value Measurements’. This Statement
defines fair value, establishes a framework for measuring fair value in
generally accepted accounting principles (“GAAP”), and expands disclosures about
fair value measurements. This Statement applies under other accounting
pronouncements that require or permit fair value measurements, the Board
having
previously concluded in those accounting pronouncements that fair value
is the
relevant measurement attribute. Accordingly, this Statement does not require
any
new fair value measurements. However, for some entities, the application
of this
Statement will change current practice. This Statement is effective for
financial statements issued for fiscal years beginning after November 15,
2007,
and interim periods within those fiscal years. The management is currently
evaluating the effect of this pronouncement on the consolidated financial
statements.
In
September 2006, FASB issued SFAS 158 ‘Employers’ Accounting for Defined Benefit
Pension and Other Postretirement Plans—an amendment of FASB Statements No. 87,
88, 106, and 132(R)’ This Statement improves financial reporting by requiring an
employer to recognize the over funded or under funded status of a defined
benefit postretirement plan (other than a multiemployer plan) as an asset
or
liability in its statement of financial position and to recognize changes
in
that funded status in the year in which the changes occur through comprehensive
income of a business entity or changes in unrestricted net assets of a
not-for-profit organization. This Statement also improves financial reporting
by
requiring an employer to measure the funded status of a plan as of the
date of
its year-end statement of financial position, with limited exceptions.
An
employer with publicly traded equity securities is required to initially
recognize the funded status of a defined benefit postretirement plan and
to
provide the required disclosures as of the end of the fiscal year ending
after
December 15, 2006. An employer without publicly traded equity securities
is
required to recognize the funded status of a defined benefit postretirement
plan
and to provide the required disclosures as of the end of the fiscal year
ending
after June 15, 2007. However, an employer without publicly traded equity
securities is required to disclose the following information in the notes
to
financial statements for a fiscal year ending after December 15, 2006,
but
before June 16, 2007, unless it has applied the recognition provisions
of this
Statement in preparing those financial statements:
| 1. |
A
brief description of the provisions of this Statement
|
| 2. |
The
date that adoption is required
|
| 3. |
The
date the employer plans to adopt the recognition provisions of
this
Statement, if earlier.
|
The
requirement to measure plan assets and benefit obligations as of the date
of the
employer’s fiscal year-end statement of financial position is effective for
fiscal years ending after December 15, 2008. The management is currently
evaluating the effect of this pronouncement on the consolidated financial
statements.
In
February 2007, FASB issued FASB Statement No. 159, The Fair Value Option
for
Financial Assets and Financial Liabilities. FAS 159 is effective for fiscal
years beginning after November 15, 2007. Early adoption is permitted subject
to
specific requirements outlined in the new Statement. Therefore, calendar-year
companies may be able to adopt FAS 159 for their first quarter 2007 financial
statements.
The
new
Statement allows entities to choose, at specified election dates, to measure
eligible financial assets and liabilities at fair value that are not otherwise
required to be measured at fair value. If a company elects the fair value
option
for an eligible item, changes in that item's fair value in subsequent reporting
periods must be recognized in current earnings. FAS 159 also establishes
presentation and disclosure requirements designed to draw comparison between
entities that elect different measurement attributes for similar assets
and
liabilities.
2. Acquisition of LandBank, LLC
On
January 26, 2006, Landbank Group, Inc. acquired all of the membership interests
in Landbank, LLC in exchange for the transfer, by certain members of the
previous management, of an aggregate of 8,200,000 shares of Landbank Group,
Inc.’s stock (post-split), in exchange for which such members of previous
management received Landbank Group, Inc.’s former wholly-owned subsidiary,
iStorage Networks Group, Inc., and $140,000 in cash.
3.
Due to/from related parties
The
Company has amounts due to various related parties that are directors and
companies related through common ownership. These amounts are unsecured,
have no
stated rates of interest, and have no maturity dates. Interest expense
has been
imputed on amounts due to related companies using a per annum rate of eight
percent (8%). As of December 31, 2006, the Company had $2,640,875 due to
related
parties. Interest expense to related parties for the years ended December
31,
2006 and 2005 was $129,986 and $40,434, respectively.
|
As
of December 31, 2006
|
As
of December 31, 2005
|
||||||||||||||||||
|
Principal
|
Interest
|
Total
|
Principal
|
Interest
|
Total
|
||||||||||||||
|
John
Beck's Amazing Profits, LLC
|
$
|
448,377
|
$
|
(5,179
|
)
|
$
|
443,198
|
$
|
330,015
|
$
|
-
|
$
|
330,015
|
||||||
|
Mentoring
of America, LLC
|
60,788
|
6,311
|
67,099
|
176,381
|
1,821
|
178,202
|
|||||||||||||
|
HG,
Inc.
|
1,542,675
|
99,218
|
1,641,893
|
467,405
|
9,324
|
476,729
|
|||||||||||||
|
HG
Marketing, LLC
|
382,606
|
67,677
|
450,283
|
482,606
|
25,736
|
508,342
|
|||||||||||||
|
Family
Products, LLC
|
-
|
2,393
|
2,393
|
(174,000
|
)
|
3,553
|
(170,447
|
)
|
|||||||||||
|
Gaytan,
Baumblatt, Leevan
|
36,009
|
-
|
36,009
|
-
|
-
|
-
|
|||||||||||||
|
$
|
2,470,455
|
$
|
170,420
|
$
|
2,640,875
|
$
|
1,282,407
|
$
|
40,434
|
$
|
1,322,841
|
||||||||
Gaytan,
Baumblatt, & Leevan is an accounting firm owned by Ray Gaytan, a Director of
the Company (see Part 3, item 9 of the Company’s Form 10-KSB
report).
4. Deferred revenue under the deposit method
Deferred
revenue totaled $794,667 as of December 31, 2006.
The
Company follows FASB 66 - Accounting for Sales of Real Estate (see note
1), and
due to the Company’s 60-day refund policy, all sales transactions, and their
related direct expenses, are not recognized until after the expiration
of the
buyer’s 60-day rescission period. Therefore, the Company records these direct
expenses, which include royalties paid to an affiliate, sales commissions,
merchant fees, and processing fees, as prepaid expenses until the 60-day
buyer’s
rescission period has expired.
Selling
expenses include a royalty paid to John Beck’s Amazing Profits, LLC (“JBAP”)(see
note 11) equal to 35% of the gross profit on sales resulting from a lead
provided by JBAP, 5% sales commission, credit card merchant fees, trust
deed
transfer costs of $50 per transaction, and property assessment
fees.
5. Loans Payable
In
August
2005, the Company purchased certain sections of land in Pershing County,
Nevada
subject to loans from Western Title Company. Each of the 19 sections of
land
secures their respective loan. The loans bear interest at 10% per annum
and
mature September 1, 2015, unless the corresponding real estate is sold
sooner,
in which case, the loan must be repaid.
During
the year ended December 31, 2006, the Company made total principal payments
of
$59,828, which included $24,259 to repay one loan in full upon sale of
the
securing property.
The
scheduled principal payments on these notes are as follows:
|
Years
ended
|
|||
|
December
31,
|
|||
|
2007
|
$
|
39,195
|
|
|
2008
|
43,299
|
||
|
2009
|
47,833
|
||
|
2010
|
52,842
|
||
|
2011
|
58,375
|
||
|
Thereafter
|
271,337
|
||
|
Total
|
512,881
|
||
|
Current
portion
|
39,195
|
||
|
Long-term
portion
|
$
|
473,686
|
|
6.
Impairment of Inventory
|
During
the year ended December 31, 2006, the Company recorded an inventory
impairment charge of $68,000 in relation to the write-down of
the
carrying, or recorded, cost of properties owned by the Company
in
Montgomery County, Texas. As stated above in note 1, the Company
performs
quarterly reviews of its inventory holdings to identify any potential
inventory impairment. As a result of the Company’s review for the quarter
ending December 31, 2006, several groups of properties within
its
Montgomery County, Texas holdings were identified as impaired
due to
zoning issues, title issues, the poor quality of the property,
or a
combination of the three. As a result, the Company’s estimate of the fair
market value (“FMV”) of these properties was significantly lower than
their recorded cost, so an impairment charge of $68,000 was recorded
to
bring the carrying cost of these properties in line with their
current
estimated FMV.
|
7.
Prepaid Expenses
Prepaid
expenses totaled $214,175 as of December 31, 2006, a decrease of $110,452
(34.0%) from the $324,627 as of December 31, 2005. The decrease in prepaid
assets is due entirely to the decrease in prepaid expenses related to the
Company’s deferred revenue. The Company follows FASB 66 - Accounting for Sales
of Real Estate (see note 1), and due to the Company’s 60-day refund policy, all
sales transactions, and their related direct expenses, are not recognized
until
after the expiration of the buyer’s 60-day rescission period. Therefore, the
Company records these direct expenses, which include royalties paid to
an
affiliate, sales commissions, merchant fees, and processing fees, as prepaid
expenses until the 60-day buyer’s rescission period has expired. Prepaid rent
represents the first, and last, months rent on the Company’s new office in
Alameda, California, and prepaid insurance relates to both the Company’s general
liability and directors & officers insurance policies and are expensed over
the one-year term of the policies. The following table details prepaid
expenses
as of December 31, 2006:
|
As
of 12/31/06
|
||||
|
Rent
|
$
|
4,663
|
||
|
Insurance
|
13,417
|
|||
|
Merchant
fees
|
18,730
|
|||
|
Sales
commissions
|
31,530
|
|||
|
Royalties
to an affiliate
|
107,227
|
|||
|
Processing
fees
|
38,608
|
|||
|
$
|
214,175
|
|||
8.
Accounts Payable
Accounts
payable consist of normal expenses incurred during the course of business,
and
the Company’s payables are current with regard to vendor terms. The increase in
accounts payable is due to the significant increase in the Company’s business
operations, as the Company has grown significantly since December 2005.
Accounts
payable were $163,175 as of December 31, 2006, with three vendors accounting
for
approximately $140,000 of the total. Approximately $20,000 was owed to
the
Company’s outside attorneys, with an additional $120,000 due to two different
Property Owners Associations. The $120,000 was in relation to dues owed
on
properties owned by the Company.
9.
Accrued Expenses
Accrued
expenses totaled $330,448 as of December 31, 2006 and consisted of $195,000
owed
to Piping Partners Holdings, LLC (see note 13), $84,000 related to shares
to be
issued to a consultant (see note 10), and $51,448 in accrued payroll and
related
expenses.
10.
Stockholders’ Deficit
Retro-active
recapitalization of shares outstanding
As
stated
above in note 2, the Company acquired all of the membership interests of
Landbank, LLC on January 26, 2006. As a result, the Company’s stockholder equity
was retroactively restated to reflect the equivalent number of shares received
in the merger, which was 8,200,000 as adjusted for the 1 for 10 reverse
stock
split on June 30, 2006 (82,000,000 pre-split). Stockholders’ equity was $82,373
as of December 31, 2005.
Common
Stock Issued
During
the year ended December 31, 2006, the Company issued 624,445 shares for
service
valued at $374,667 at the time of issuance.
Common
Stock to be issued
Pursuant
to the terms of its agreement with Aurelius Consulting Group, Inc. (also
see
note 9), the Company is to issue shares worth $12,000 per month to Aurelius
as
compensation for services provided. During the three month period ended
December
31, 2006, the Company recorded $48,000 in shares to be issued for services
provided. The additional month of expense was to reconcile the eight (8)
monthly
installments with the term of the agreement, which was May 2006 through
December
2006. Common stock to be issued, which totaled $84,000 as of December 31,
2006,
has been reflected as a liability in the accompanying consolidated financial
statements.
Stock
Split
On
March
3, 2006, the Company obtained written consent from stockholders holding
a
majority of the Company’s outstanding shares of voting securities to authorize a
reverse split of the Company’s outstanding common stock. Pursuant to the terms
of the written consent, the Company completed a 1 for 10 reverse split
of its
common stock, with special treatment for certain Company shareholders to
preserve round lot shareholders. The following is a summary illustrating
the
effect of the reverse stock split:
|
Post-Split
|
Pre-Split
|
||||||
| Par Value | $ | 0.0001 | $ | 0.00001 | |||
| Authorized number of shares | 100,000,000 | 1,000,000,000 | |||||
| Shares issued and outstanding | 9,206,597 | 92,052,000 | |||||
All fractional shares are rounded up and the authorized shares were reduced to 100,000,000. The financial statements have been retroactively restated for the effects of the above stock splits.
11.
Related-party transactions
The
Company pays a royalty to related companies equal to 35% of gross profit
received by the Company on each all-cash sale generated by leads provided
by
that related company. Gross profit is defined as land sale revenue reduced
by
inventory cost, sales commissions, credit card merchant fees, and deed
of trust
transfer costs. The related companies are indirectly owned and controlled
by two
of the Company’s principal stockholders, who are also officers and directors of
the Company. A third director of the Company receives a profit participation
of
50% of the royalty payments received by one of the related companies, pursuant
to its royalty agreement with the Company, for his services to that related
company. During the years ended December 31, 2006 and 2005, the Company
recorded
royalty expense to related parties of $668,159 and $177,897, respectively.
The
Company had prepaid royalty expense to related parties of $107,227 as of
December 31, 2006 (also see note 4).
The
Company has an agreement with Investment Capital Researchers, Inc. (“ICR”), a
Company owned by a member of the Company’s Board of Directors. Pursuant to the
agreement, ICR received 200,000 shares (post-split) of the Company’s common
stock on June 30, 2006 and may receive an additional 200,000 shares of
the
Company’s common stock (post-split) upon the achievement of specified
milestones. Under the terms of the agreement, the issued shares can only
be sold
or transferred over a four-year period at the rate of 100,000 on each
anniversary of the closing date of a secondary offering. All shares issued
pursuant to this agreement will be restricted securities. The 200,000 shares
issued on June 30, 2006 were valued at $120,000 based on fair value of
the
shares at the time of issuance. The Company expensed the entire $120,000
as
non-cash consulting fees during the six month period ended June 30,
2006.
The
Company shares
its principal office in Van Nuys and its offices in both American Fork
and
Alameda with related parties. The Company does
not
pay rent at these facilities, but, if it were required to pay rent on these
facilities, the Company estimates the monthly rent value being approximately
$767, which the Company deems as not material. The related parties are
companies
owned and controlled by two of the Company’s
principal
stockholders, who are officers and directors of the Company. The Company's
office in Phoenix, Arizona is subleased from a related company owned by
two of
the Company’s directors. Under the terms of the sublease arrangement, the
Company pays a pro rata share of the rent paid by the related company,
based
upon the portion of the space occupied by the Company. During the years
ended
December 31, 2006 and 2005, the Company recorded related party rent expense
totaling $22,226 and $12,570, respectively.
The
following table details the Company’s rent expense commitments per the terms of
the applicable lease agreements. The Company’s lease for its Arizona office
expires in January 2008, while the lease on for its Alameda office expires
in
January 2009. These two leases represent the only leases currently entered
into
by the Company.
|
2007
|
2008
|
2009
|
||||||||
|
Arizona
Office
|
$
|
22,224
|
$
|
1,852
|
$
|
-
|
||||
|
Alameda
Office
|
25,245
|
28,392
|
2,366
|
|||||||
|
Total
|
$
|
47,469
|
$
|
30,244
|
$
|
2,366
|
||||
A
director of the Company has, through his accounting firm, provided accounting
service to the Company. The Company has recorded related party accounting
expense totaling $126,805 during the year ended December 31, 2006. The
Company
incurred $10,650 in related party accounting expense during the same
period in fiscal year 2005.
The
Company currently pays no salary or other compensation to its Chief Executive
Officer or President. The Company’s Chief Financial Officer is paid an annual
base salary of $110,000 for 2006.
12. Concentration of Credit Risk
The
Company maintains certain cash balances with a commercial bank. The Company’s
cash balance of $265,970 as of December 31, 2006 was approximately $15,970
above
insured limits.
13.
Commitments
Joint
Marketing Agreement with Aurelius Consulting Group, Inc.
On
May
26, 2006, the Company entered into a Joint Marketing Agreement (the “Agreement”)
with Aurelius Consulting Group, Inc. /Red Chip Companies (“ACG/RC”) to assist in
marketing the Company to the investment community. ACG/RC, per the terms
of the
Agreement, will among other public relations and investor relations activities,
distribute both a research report and a newsletter to the investment
community.
In
return
for the above mentioned services, the Company will pay ACG/RC a total of
$150,000 in cash and restricted shares of the Company’s common stock. The cash
portion will total $44,000, with $20,000 down and $24,000 in eight monthly
installments of $3,000 each. The remaining $106,000 is to be paid in stock,
with
$10,000 to be paid immediately and the remainder in eight monthly installments
of $12,000 each.
As
of
December 31, 2006, the Company had paid ACG/RC $41,000 in cash and had
issued
24,445 shares (post-split) of stock valued at $14,667 based on fair value
of the
shares at the time of issuance. The Company expensed the entire $14,667
as
professional fees during the six month period ended June 30, 2006.
During
the year ended December 31, 2006, the Company recorded $84,000 in shares
to be
issued for services provided and the same amount as professional fees.
The
amount is recorded as a current liability.
Consulting
Agreement with Independent Third Parties.
On
August
22, 2005, Landbank, LLC hired two (2) independent consultants (“the
consultants”) to locate a publicly-traded company and negotiate a business
combination with Landbank, LLC. In addition, the consultants were hired
to
assist the Company with future fundraising activities. Under the terms
of the
original agreement, the Company was to pay the consultants $180,000 cash,
payable in nine (9) monthly installments of $20,000 each, commencing on
September 1, 2005. On May 10, 2006, the parties amended the original agreement
to include compensation for any funds directly raised by the consultants.
Under
terms of the amended agreement, the consultants are to receive 800,000
shares of
the Company’s common stock (post-split), par value $0.0001, with 400,000 shares
to be issued on June 30, 2006 and the remaining 400,000 shares issued upon
the
achievement of specified milestones.
Under
the
terms of the agreement, the issued shares can only be sold or transferred
over a
four-year period at the rate of 200,000 on each anniversary of the closing
date
of a secondary offering. All shares issued pursuant to this agreement will
be
restricted securities.
On
June
30, 2006, the Company issued 400,000 shares (post-split) of its common
stock to
the consultants, valuing these shares at $240,000 based on fair value of
the
shares at the time of issuance. The Company expensed the entire $240,000
as
professional fees during the six months ended June 30, 2006.
During
the twelve months ended December 31, 2006, the Company paid the consultants
$127,000.
Agreement
with Piping Partners Holdings, Inc.
On
January 25, 2006, the Company entered into an agreement with Piping Partners
Holdings, LLC (“PPH”) to assist the Company in seeking quotation of the
Company’s shares on the Over the Counter Bulletin Board (“OTCBB”).
Per
terms
of the agreement with PPH, the Company agrees to pay PPH a success fee,
which
includes any and all application and filing fees and expenses, of $235,000,
which is to be paid upon active quotation, with PPH’s assistance, of the
Company’s shares on the OTCBB, less any advance amounts, and a $10,000 advance
for legal services engaged by PPH, and approved by the Company, in connection
with the Exchange Act Reports.
As
of
December 31, 2006, the Company had paid PPH the above mentioned $10,000
advance
for legal services and an additional $30,000 advance towards fees incurred
by
PPH in relation to their services provided to the Company.
14. Approval of 2006 Stock Incentive Plan
On
November 2, 2006, the Board of Directors adopted, by written consent, the
2006
Stock Incentive Plan (“the Plan”). On November 9, 2006, the adoption of the Plan
was approved and ratified by written consent signed by the holders of a
majority
of the Company’s stock. Per the terms of the Plan, the Company is authorized to
reserve 3,000,000 shares of the Company’s authorized and unissued shares of
common stock for issuance pursuant to the Plan.
On
November 9, 2006, the Company granted options to each of its two independent
directors to acquire 1,200,000 shares (600,000 shares per director) of
the
Company’s common stock pursuant to the Plan. During the year ended December 31,
2006, the Company recorded $23,986 of compensation based on the fair value
method under FAS 123R using the following assumptions: Volatility of 125.95%,
risk free interest rate of 4.60% , dividend yield of 0% and expected life
of 5
years. The remaining value of the option grant will be expensed over the
remaining vesting period.
On
December 28, 2006, the Company granted options to two additional Directors,
one
of whom is the Company’s Chief Executive Officer and the other the President, in
consideration of their service as Directors of the company. Each Director
was
granted an option to purchase 100,000 shares of common stock at an exercise
price of $0.12 per share, the fair market value of our common stock on
the date
of grant. During the year ended December 31, 2006, the Company recorded
compensation expense based on the fair value method under FAS 123R using
the
following assumptions: Volatility of 191.06%, risk free interest rate of
4.69%,
dividend yield of 0%, and expected life of 5 years. Each of the options
vests as
follows: 50% of the shares subject to each option will vest upon achievement
of
a specified performance goal related to our stock price and the remainder
will
vest on a quarterly basis thereafter at a rate of 25% per quarter. The
options
will not vest and the options will expire in the event that the performance
goal
is not achieved within the timeframe specified by the goal. Each option
grant
was valued at $11,681 as of the date of grant using the Black-Sholes option
pricing model in accordance with FAS 123R. The term of the option, and
the
implied service condition, is one year from the date of grant, so the Company
will expense the value of the option, $1,948 per month ($974 per option),
over
the twelve-month term beginning in December 2006.
The
Company adopted SFAS No. 123-R effective November 1, 2006 using the
modified prospective method. Under this transition method, stock compensation
expense recognized in the year ended December 31, 2006 includes compensation
expense for all stock-based compensation awards granted on or after
November 1, 2006, based on the grant-date fair value estimated in
accordance with the provisions of SFAS No. 123-R.
|
Options
outstanding
|
Weighted
Average Exercise Price
|
Aggregate
Intrinsic Value
|
||||||||
|
Outstanding,
December 31, 2005
|
-
|
-
|
-
|
|||||||
|
Granted
|
1,400,000
|
$
|
0.02
|
-
|
||||||
|
Forfeited
|
-
|
-
|
-
|
|||||||
|
Exercised
|
-
|
-
|
||||||||
|
Outstanding
December 31, 2006
|
1,400,000
|
$
|
0.02
|
-
|
||||||
Following
is a summary of the status of options outstanding at December 31, 2006:
|
Outstanding
Options
|
Exercisable
Options
|
|||||
|
|
|
|||||
|
Exercise
Price
|
Number
|
Average
Remaining Contractual Life
|
Average
Exercise Price
|
Number
|
Average
Exercise Price
|
|
|
$0.0001
|
1,200,000
|
4.86
|
$0.0001
|
34,849
|
$0.0001
|
|
|
$0.12
|
200,000
|
4.99
|
$0.02
|
438
|
$0.02
|
|
15.
Office Lease
On
December 22, 2006, the Company entered into a lease for approximately 1,200
square feet of office space in Alameda, California. The lease is for a
term of
25 months, commencing January 1, 2007. Per the terms of the lease, the
first
month is rent-free, with a base rent of $2,295 per month for months two
(2)
through twelve (12) and $2,366 per month for months thirteen (13) through
twenty-five (25). The Company is also responsible for paying its pro-rated
share
of certain expenses, such as property taxes.
16.
Going
Concern
The
accompanying consolidated financial statements have been prepared in conformity
with generally accepted accounting principles which contemplate continuation
of
the company as a going concern. However, the Company has an accumulated
deficit
of $1,116,697 as of December 31, 2006, including a net loss of $1,199,070
for
the year ended December 31, 2006. The Company’s total liabilities exceeded its
total assets by $716,096 as of December 31, 2006. In view of the matters
described above, recoverability of a major portion of the recorded asset
amounts
shown in the accompanying consolidated balance sheet is dependent upon
continued
operations of the company, which in turn is dependent upon the Company’s ability
to raise additional capital, obtain financing and succeed in its future
operations. The financial statements do not include any adjustments relating
to
the recoverability and classification of recorded asset amounts or amounts
and
classification of liabilities that might be necessary should the Company
be
unable to continue as a going concern.
Management
has taken the following steps to revise its operating and financial
requirements, which it believes are sufficient to provide the Company with
the
ability to continue as a going concern
| 1. |
Hired
additional Land Acquisition Specialists to help acquire more properties,
as well as a more diversified mix of properties, that may allow
the
Company to increase sales volume while minimizing the risk of saturating
a
particular market, or geographic location, and thereby adversely
affecting
the ability of the Company’s customers to resell their properties at a
profit.
|
| 2. |
Hired
consultants to assist the Company in securing additional financing
(see
note 13).
|
Management
believes that actions presently being taken to (1) obtain additional funding,
and (2) implement its strategic plans provide the opportunity for the Company
to
continue as a going concern. Furthermore, two of the principal shareholders
have
demonstrated both their ability and willingness to lend working capital
to the
Company and are committed to doing so into the future. As of December 31,
2006,
these principal shareholders have directly, and indirectly, lent the company
$2,604,866 (see note 3).
None.
Our
Chief
Executive Officer and Chief Financial Officer (our principal executive officer
and principal financial officer, respectively) conducted an evaluation of
the
effectiveness of the design and operation of our disclosure controls and
procedures as of the end of the period covered by this annual report on Form
10-K. Based on this evaluation, our Chief Executive Officer and our Chief
Financial Officer have concluded that, subject to the limitations noted above,
as of the end of the period covered by this annual report on Form 10-K, our
disclosure controls and procedures were effective to ensure that information
we
are required to disclose in reports that we file or submit under the Securities
Exchange Act of 1934 is recorded, processed, summarized and reported within
the
time periods specified in Securities and Exchange Commission rules and forms.
In
addition, there was no change in our internal control over financial reporting
that occurred during the period covered
by this annual report on Form 10-K that has materially affected, or is
reasonably likely to materially affect, our internal control over financial
reporting.
None.
PART
III
Item
9. Directors, Executive Officers,
Promoters, Control Persons and Corporate Governance; Compliance with Section
16(a) of the Exchange Act
Landbank
has a five person Board of Directors, two of whom are neither employees of
nor
affiliated with the Company. In addition, the Company has formed an Audit
Committee, effective July 12, 2006, comprised of Ray Gaytan and Steve Weber,
the
two non-affiliate/employee directors of the Company. Mr. Gaytan serves as
the
audit committee financial expert for the Committee.
|
Name
|
Age
|
Position
Held and Tenure
|
||
|
Doug
Gravink
|
51
|
Director
and Chief Executive Officer
|
||
|
since
January 2006
|
||||
|
Gary
Hewitt
|
50
|
Director
and President and Secretary
|
||
|
since
January 2006
|
||||
|
John
Genesi
|
42
|
Chief
Financial Officer
|
||
|
since
July 2006
|
||||
|
John
Beck
|
64
|
Director
since January 2006
|
||
|
Ray
Gaytan
|
53
|
Director
since January 2006
|
||
|
|
||||
|
Stephen
Weber
|
58
|
Director
since January 2006
|
Biographical
Information
Doug
Gravink, Chief Executive Officer. Mr.
Gravink has been Chief Executive Officer and a director of the Company since
January 2006. Concurrently with his role as CEO of the Company, Mr. Gravink
serves as the co-managing member of a multimedia marketing company, Family
Products, LLC (“FPLLC”), a position he has held for the last five (5) years.
From 1993 to 1997, Mr. Gravink served as President of Positive Response Media,
Inc.
Gary
Hewitt, President. Gary
Hewitt has been President, Secretary, and a director of the Company since
January 2006. Concurrently with his role as President of the Company, Mr.
Hewitt
serves
as
the co- managing partner with Doug Gravink of FPLLC, a
position he has held for the last five (5) years.
John
Genesi, Chief Financial Officer. John
Genesi has served as the Company’s Chief Financial Officer since July 2006.
Prior to joining the Company, Mr. Genesi served as CFO and a director of
Technical Services and Logistics Inc. In 1997, Mr. Genesi joined DAS Devices,
Inc. as its corporate controller, where he implemented and managed DAS Devices’
accounting/finance controls and procedures.
John
Beck, Director.
John
Beck has served as a director of the Company since January 2006. Mr.
Beck is
the author or co-author of numerous books and articles on real estate and
real
estate related investing. For the past 15 years, Mr. Beck has conducted and
continues to conduct real estate investment seminars, and has appeared as
a
resident expert on foreclosures on numerous radio and television shows. In
addition to a law degree, John Beck holds MBAs in both Taxation and Real
Estate.
Ray
Gaytan, Director. Ray
Gaytan has served as a director of the Company since January 2006. Since
1990, Mr. Gaytan has headed his own accounting firm, Gaytan, Baumblatt &
Leevan, LLP. Mr. Gaytan is a certified public accountant.
Stephen
Weber, Director. Mr.
Weber
has served as director of the Company since January 2006. Mr. Weber formed
and
currently serves as President of Sutton and Associates, a commercial real
estate
company, and Investment Capital Researchers, a company that invests in first
trust deeds in the residential market. Prior to forming these companies,
Mr.
Weber was President of Positive Response Television, Inc., a direct marketing
and media company that he founded in 1989, and President and Chief Financial
Officer of Valencia International Entertainment, a television production
company
Gary
Hewitt and Doug Gravink are parties to a consent decree negotiated with the
Federal Trade Commission (“FTC”), pursuant to which they and a number of other
companies agreed not to sell a specific type of abdominal muscle stimulator
in
the United States following a ruling by the FTC that such devices required
Federal Drug Administration (“FDA”) approval and that any such devices not FDA
approved are banned. The consent decree is completely unrelated to the Company’s
business.
Section
16(a) Beneficial Ownership Reporting Compliance
Section
16(a) of the Exchange Act requires the Company’s executive officers, directors
and persons who own more than 10% of a registered class of the Company’s equity
securities to file reports of ownership and changes in ownership with the
Securities and Exchange Commission. Such executive officers, directors and
10%
stockholders are also required by Securities and Exchange Commission rules
to
furnish the Company with copies of all forms that they file pursuant to Section
16(a).
The
Company was not a reporting company in 2006 and, therefore, no reports under
Section 16(a) were required to be filed by its executive officers, directors
and
persons who own more than 10% of the Company’s equity securities.
Code
of Ethics
The
Company has adopted a code of business conduct and ethics for directors,
officers (including the Company’s principal executive officer and principal
financial officer) and employees, known as the Code of Business Ethics and
Conduct. The Code of Business Ethics and Conduct is available for review
by
stockholders on the Company’s website at
(www.landbankgroupinc.com/investor.html). No information from the Company’s
website is meant to be incorporated herein by this reference. The Company
intends to satisfy the disclosure requirement under Item 5.05 of Form 8-K
regarding any amendment to, or waiver from, a provision of our code of ethics
by
filing a current report on Form 8-K with the Securities and Exchange Commission
disclosing such information, or by posting such information on our website,
at
the address specified above, within the period required by Item 5.05 of Form
8-K.
Audit
Committee Financial Expert
The
Audit
Committee includes at least one member who is determined by the Board to
meet
the qualifications of an “audit committee financial expert” in accordance with
SEC rules, excluding the requirement that the person meets the relevant
definition of an “independent director”. Ray Gaytan is the director who has been
determined to be an audit committee financial expert. Stockholders should
understand that this designation is a disclosure requirement of the SEC related
to Mr. Gaytan’s experience and understanding with respect to certain accounting
and auditing matters. The designation does not impose on Mr. Gaytan any duties,
obligations or liability that are greater than are generally imposed on him
as a
member of the Audit Committee and Board of Directors, and his designation
as an
audit committee financial expert pursuant to this SEC requirement does not
affect the duties, obligations or liability of any other member of the Audit
Committee or the Board of Directors. Mr. Gaytan is not an independent
director.
All
of
our existing officers joined the Company in January 2006 or later. We currently
pay no salary or bonus to our Chief Executive Officer or President. John
Genesi,
the Company's Chief Financial Officer since July 2006, is paid an annual
base
salary for 2006 of $110,000. On November 2, 2006, the Board adopted
a Stock Incentive Plan (the "Plan") pursuant to which we can grant options
and
stock awards to our officers, directors, and employees. The Plan was approved
by
our stockholders on November 9, 2006. Prior to the adoption of the Plan,
we had
no existing equity incentive plan. In 2006 we granted options to our Chief
Executive Officer and President in consideration for their service on the
board
of directors. These options are included in the respective officer's
compensation in the table below, and are discussed under "Director Compensation"
below.
The
table
below summarizes the compensation of our officers for the last fiscal
year:
Summary
Compensation Table
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All
Other
|
|
|
||
|
Name
and Principal
|
|
|
Year
|
|
|
Salary
|
|
|
Bonus
|
|
|
Option
Awards
|
|
|
Compensation
|
|
|
Total
|
|
Position
|
|
|
|
|
($)
|
|
($)
|
|
($)
|
|
($)
|
|
($)
|
|||||
|
(a)
|
(b)
|
|
(c)
|
|
(d)
|
|
(f)
|
|
(i)
|
|
(j)
|
|||||||
|
Douglas
Gravink (1)
|
2006
|
--
|
--
|
$
|
974(3
|
)
|
$
|
334,080(4
|
)
|
$
|
335,054
|
|||||||
|
Chief
Executive Officer
|
||||||||||||||||||
|
Gary
Hewitt (1)
|
2006
|
--
|
--
|
$
|
974(3
|
)
|
$
|
334,079(4
|
)
|
$
|
335,053
|
|||||||
|
President
and Secretary
|
||||||||||||||||||
| John Genesi (2) | ||||||||||||||||||
|
Chief
Financial Officer
|
2006
|
$
|
57,115
|
--
|
--
|
--
|
$
|
57,115
|
(1) Joined
the Company on January 27, 2006. All of the Company's prior officers and
directors resigned as of January 26, 2006, and received no compensation for
2006.
(2) Joined
the Company on July 5, 2006. Mr. Genesi's annual salary is
$110,000.
(3) On
December 28, 2006, both Messrs. Gravink and Hewitt were granted an option
to
purchase 100,000 shares of common stock at an exercise price of $0.12 per
share,
the fair market value of our common stock on the date of grant, in consideration
of their service as a director of the company. Each of the options vests
as
follows: 50% of the shares subject to each option will vest upon achievement
of
a specified performance goal related to our stock price and the remainder
will
vest on a quarterly basis thereafter at a rate of 25% per quarter. The
options
will not vest and the options will expire in the event that the performance
goal
is not achieved within the timeframe specified by the goal. Each option
grant
was valued at $11,681 as of the date of grant using the Black-Sholes option
pricing model in accordance with FAS 123R. The term of the option, and
the
implied service condition, is one year from the date of grant, so the Company
will expense the value of the options, $1,948 per month ($974 per option),
over
the twelve-month term beginning in December 2006. Assumptions made in the
Black-Sholes valuation of stock options granted to Messrs. Gravink and
Hewitt
are as follows:
|
·
|
Dividend
yield per share
|
$
0.00
|
|
|
|
|
|
·
|
Annualized
volatility
|
191.06%
|
|
|
|
|
|
·
|
Risk-free
interest rate
|
4.69%
|
|
|
|
|
|
·
|
Expected
life
|
5
years
|
|
|
|
|
|
·
|
Probability
of achieving market condition
|
Above
Average
|
|
|
|
|
|
·
|
Discount
Factor Applied to market condition
|
None
|
(4) Represents
royalty fees paid to John Beck's Amazing Profits, LLC through December
31, 2006,
for leads provided to Landbank pursuant to our royalty agreement with this
company. John Beck's Amazing Profits, LLC is indirectly owned, 50% each,
by
Messrs. Gravink and Hewitt.
The
table
below summarizes outstanding equity awards of our officers as of December
31,
2006:
Outstanding
Equity Awards at Fiscal Year-End
|
Option
Awards
|
||||||||||||||||
|
|
Number
of
|
Number
of
|
Equity
Incentive Plan
|
Option
|
Option
|
|||||||||||
|
|
Securities
Underlying
|
Securities
Underlying
|
Awards:
Number of
|
Exercise
|
Expiration
|
|||||||||||
|
Name
|
Unexercised
Options (#)
|
Unexercised
Options (#)
|
Securities
Underlying
|
Price
($)
|
Date
|
|||||||||||
|
|
Exercisable
|
Unexercisable
|
Unexercised
Unearned
|
|
|
|||||||||||
|
|
|
|
Options
(#)
|
|||||||||||||
|
(a)
|
(b)
|
(c)
|
(d)
|
(e)
|
(f)
|
|||||||||||
|
Douglas
Gravink
|
--
|
--
|
100,000
(1
|
)
|
$
|
0.12
|
12/27/16
|
|||||||||
|
Gary
Hewitt
|
--
|
--
|
100,000
(1
|
)
|
$
|
0.12
|
12/27/16
|
|||||||||
|
John
Genesi
|
--
|
--
|
--
|
--
|
--
|
|||||||||||
| (1) |
On
December 28, 2006, both Messrs. Gravink and Hewitt were granted
an option
to purchase 100,000 shares of common stock at an exercise price
of $0.12
per share, the fair market value of our common stock on the date
of grant,
in consideration of their service as a director of the company.
Each of
the options vests as follows: 50% of the shares subject to each
option
will vest upon achievement of a specified performance goal related
to our
stock price and the remainder will vest on a quarterly basis
thereafter at
a rate of 25% per quarter. The options will not vest and the
options will
expire prior to the specified date in the table in the event
that the
performance goal is not achieved within the timeframe specified
by the
goal.
|
| (2) |
The
options will expire earlier in the event the performance goal
is not met
within one year of the later of the (i) the date of grant or
(ii) the
listing of the Company's stock on the
OTCBB.
|
We
do not
currently pay our directors any cash compensation for service on the board
of
directors. Prior to the recent adoption of the Stock Incentive Plan, we had
also
never granted any equity awards, and, therefore, we are still in the process
of
developing our policies in terms of grants to officers and directors. However,
we have recently decided to compensate certain of our directors with option
grants under the Stock Incentive Plan. To date, we have made grants to our
non-affiliate directors (Stephen Weber and Ray Gaytan) and to our executive
directors (Doug Gravink and Gary Hewitt), but we have not developed a policy
on
equity compensation with respect to John Beck, a non-executive director who
is a
significant stockholder.
In
November 2006, we granted each of our two non-affiliate directors an option
to
purchase 600,000 shares as compensation for their service on the board of
directors. These options have a five year vesting schedule and vested as
to 20%
on December 31, 2006, with an additional 20% vesting each year thereafter.
The
number of shares of common stock and the exercise price were calculated to
provide each director with an equivalent annual compensation of $50,000,
or
$250,000 over five years, at an assumed target price of $0.40 per share.
Each
option was granted with a nominal exercise price equal to the par value of
a
share of our common stock.
In
December 2006, we granted an option to purchase 100,000 shares to each of
our
executive directors as compensation for their service on the board of directors.
Each of the options has an exercise price of $0.12 per share, which was the
fair
market value of our common stock on the date of grant. Each of the options
vests
as follows: 50% of the shares subject to each option will vest upon achievement
of a specified performance goal related to our stock price and the remainder
will vest on a quarterly basis thereafter at a rate of 25% per quarter. The
options will not vest and the options will expire in the event that the
performance goal is not achieved within the timeframe specified by the goal.
To
date, the performance goal has not been achieved.
The
table
below summarizes the compensation of our directors for the last fiscal
year:
Director
Compensation
|
Name
(1)
|
Fees
Earned
|
Stock
|
Option
|
Non-Equity
|
Change
in Pension
|
All
Other
|
Total
($)
|
|||||||||||||||
|
|
or
Paid in
|
Awards
($)
|
Awards
($)
|
Incentive
Plan
|
Value
and
|
Compensation
($)
|
|
|||||||||||||||
|
|
Cash
($)
|
|
|
Compensation
($)
|
Nonqualified
|
|
|
|||||||||||||||
|
|
|
|
|
|
Deferred
|
|
|
|||||||||||||||
|
|
|
|
|
|
Compensation
|
|
|
|||||||||||||||
|
|
|
|
|
|
Earnings
($)
|
|
||||||||||||||||
|
(a)
|
(b)
|
(c)
|
(d)
|
(e)
|
(f)
|
(g)
|
(h)
|
|||||||||||||||
|
Ray
Gaytan (2)
|
--
|
--
|
$
|
11,993
(3
|
)
|
--
|
--
|
$
|
126,805(4
|
)
|
$
|
138,798
|
||||||||||
|
Stephen
Weber (2)
|
--
|
--
|
$
|
11,993
(3
|
)
|
--
|
--
|
$
|
120,000(5
|
)
|
$
|
131,993
|
||||||||||
|
John
Beck
|
--
|
--
|
--
|
--
|
--
|
--
|
--(6
|
)
|
||||||||||||||
| (1) |
This
table excludes information relating to Messrs. Gravink and Hewitt
as all
compensation earned in consideration of their services on the board
of
directors has been reported in the Summary Compensation Table above.
All
options granted to Messrs. Gravink and Hewitt were outstanding
as of
December 31, 2006.
|
| (2) |
As
of December 31, 2006, each of Messrs. Gaytan and Weber held options
to
purchase an aggregate of 600,000 shares of our common stock, all
of which
remain outstanding.
|
| (3) |
Both
Messrs. Gaytan and Weber were granted an option to purchase 600,000
shares
of common stock at an exercise price of $0.0001 per share on November
9,
2006 in consideration of their service as a director of the company.
Each
of the options vests according to the following schedule: 20% of
the
shares subject to each option vested on December 31, 2006 and 20%
of the
shares subject to each option vest each year thereafter. The fair
market
value of our common stock on the date of grant was $0.10 per share.
These
options were valued at $59,963 each on the date of grant using
the
Black-Sholes option pricing model in accordance with FAS 123R.
We expensed
$11,993 of this value for each option grant during 2006, representing
20%
of the total value of the option grant, with the remaining value
of the
option grant to be expensed over the remaining vesting period.
Assumptions
made in the valuation of stock options granted to Messrs. Gaytan
and Weber
are as follows:
|
|
·
|
Dividend
yield per share
|
$
0.00
|
|
|
|
|
|
·
|
Annualized
volatility
|
125.95%
|
|
|
|
|
|
·
|
Risk-free
interste rate
|
4.60%
|
|
|
|
|
|
·
|
Expected
life
|
5
years
|
|
|
|
|
|
(4)
|
Represents
fees totaling $126,805 paid to Gaytan, Baumblatt & Leevan, LLP in 2006
in relation to accounting services provided by this accounting
firm. Mr.
Gaytan is a partner in this firm.
|
|
(5)
|
Represents
consulting fees paid to Investment Capital Researchers, Inc. ("ICR"),
a
company owned by Mr. Weber for consulting services rendered to
Landbank,
LLC. Payment of these fees was made by issuing 200,000 shares of
the
Company's common stock, valued at
$120,000.
|
|
(6)
|
Excludes
profit participation received by Mr. Beck for services provided
to our
affiliate, John Beck Amazing Profits, LLC equal to 50% of any royalty
payments received by John Beck Amazing Profits, LLC from us. Also
excludes
salaries earned by Mr. Beck's three children who are employed as
acquisition specialists by the
Company.
|
Item
11. Security Ownership of Certain
Beneficial Owners and Management and Related Stockholder
Matters
The
following table sets forth information relating to the beneficial ownership
of
the Company’s common stock by those persons beneficia1ly holding more than 5% of
the Company's common stock, by the Company's directors and executive officers,
and by all of the Company's directors and executive officers as a group as
of
December 31, 2006.
|
(1)
Title
of Class
|
(2)
Name
and Address of Beneficial Owner
|
(3)
Amount
and Nature of Beneficial Ownership (1)
|
(4)
Percent
of Class (2)
|
|||
|
1.
Common
|
Doug
Gravink
7030
Hayvenhurst Ave.
Van
Nuys, CA 91406
|
2,733,334
|
27.8%
|
|||
|
2.
Common
|
Gary
Hewitt
7030
Hayvenhurst Ave.
Van
Nuys, CA 91406
|
2,733,333
|
27.8%
|
|||
|
3.
Common
|
John
Beck (3)
7030
Hayvenhurst Ave.
Van
Nuys, CA 91406
|
2,733,333
|
27.8%
|
|||
|
4.
Common
|
John
Genesi
7030
Hayvenhurst Ave.
Van
Nuys, CA 91406
|
-0-
|
-0-
|
|||
|
5.
Common
|
Ray
Gaytan (4)
11400
Olympic Blvd.
Los
Angeles, CA 90064
|
124,680
|
1.3%
|
|||
|
6.
Common
|
Stephen
Weber (5)
5808
Varna Ave.
Van
Nuys, CA 91401
|
320,000
|
3.2
%
|
|||
|
7.
Common
|
Directors
and Executive Officers as a
Group
(6 persons)
|
8,644,680
|
87.8%
|
|
(1)
|
"Beneficial
Owner" means having or sharing, directly or indirectly (i)
voting power,
which includes the power to vote or to direct the voting, or
(ii)
investment power, which includes the power to dispose or to
direct the
disposition, of shares of the common stock of an issuer. The
definition of
beneficial ownership includes shares, underlying options or
warrants to
purchase common stock, or other securities convertible into
common stock,
that currently are exercisable or convertible or that will
become
exercisable or convertible within 60 days. Unless otherwise
indicated, the
beneficial owner has sole voting and investment power.
|
|
(2)
|
Percentages
are based on 9,835,331 shares of common stock issued and outstanding
as of
December 31, 2006.
|
|
(3)
|
Held
as JTWRS with his wife.
|
|
(4)
|
Includes
120,000 shares subject to options exercisable within 60 days of
December
31, 2006.
|
|
(5)
|
Includes
200,000 shares issued to Investment Capital Researchers, Inc.
(“ICR”)
pursuant to an agreement dated August 1, 2005, and amended June
27, 2006
for the provision of advisory services to the Company.
Stephen Weber is the sole stockholder and director of ICR.
Includes 120,000 shares subject to options exercisable within 60
days of
December 31, 2006.
|
The
Company has entered into royalty agreements with several direct-marketing
companies, namely, John Beck's Amazing Profits, LLC ("JBAP"), John Alexander
LLC
("JA"), and Jeff Paul LLC ("JP"). JBAP, JA and JP are affiliates of the Company
and are owned by Family Products, LLC ("FPLLC"). FPLLC is in turn owned and
controlled by two of the Company's principal stockholders, Gary Hewitt and
Doug
Gravink, who are officers and directors of the Company. These marketing
companies provide customer leads for Landbank's property sales, in return
for a
royalty of 35% of the gross profit less acquisition
costs on the sale of any property that was result of a lead provided by such
marketing company. Aggregate royalties paid by Landbank, LLC to these marketing
companies in 2005 amounted to $380,761 and $572,504 for fiscal year 2006
(total
royalties to JBAP since inception are $953,265, of which $846,038 have been
expensed with the remaining $107,227 carried as a prepaid expense as of December
31, 2006). John Beck, a director of the Company, was the creator of the
marketing concept for JBAP and continues to provide services to JBAP, including
the development of materials sold to participants and the creation and conduct
of seminars. Mr. Beck also serves as the "figurehead" for this company. As
partial consideration for his services, Mr. Beck receives a profit participation
of 50% of the royalty payments received by JBAP pursuant to the royalty
agreement with the Company, and is also reimbursed for certain home-office
expenses.
The
Company, through its operating subsidiary Landbank, LLC, shares office space
with FPLLC at no charge for its headquarters in Van Nuys, California. The
Company estimates that it uses approximately 300 square feet of office space
at
this facility, with an estimated monthly rent value of $767, which the Company
deems as not material. The Company does not pay rent at either its American
Fork
or Alameda offices. The American Fork space is shared with Mentoring, with
estimated usage of approximately 200 square feet and an estimated cost, if
the
Company were required to pay rent, of approximately $360/month, which amount
we
do not view as material. The Alameda office space is provided by John Beck,
with
an estimated usage of approximately 200 square feet and an estimated cost,
if
the Company were required to pay rent, of approximately $200/month, which
amount
the Company believes immaterial. The Company's office in Phoenix, Arizona
is
subleased from Mentoring, an affiliated company through common ownership.
Mentoring is owned by Messrs. Gravink and Hewitt. Under the terms of the
sublease arrangement, the Company pays a pro rata share of the rent paid
by
Mentoring, based upon the portion of the space occupied by the Company. The
term
of this lease is thirty-two (32) months, beginning on June 1, 2005 and
terminating on January 31, 2008, and Mentoring, at its discretion, can instruct
the Company not to remit cash payment for the monthly rent and instead apply
the
monthly rent fee to any outstanding inter-company balance between the companies.
During fiscal year 2005, the Company recorded monthly rent fees totaling
$12,570, which included June 2005 through December 2005. Rent expense totaled
$22,226 for the twelve months ended December 31, 2006.
The
wife
of John Beck, a director of the Company, currently serves as co-manager of
Landbank, LLC, the Company's operating subsidiary. Mrs. Beck does not receive
a
salary or other compensation from Landbank, LLC or the Company. The Company
employs Mr. and Mrs. Beck's three adult children as acquisition specialists.
Each receives standard salary and commission paid to other members of the
acquisition team.
Ray
Gaytan, a director of the Company, has through his accounting firm of Gaytan,
Baumblatt & Leevan, LLP, provided accounting services in the past to the
Company, Landbank, LLC and the FPLLC group of companies. During fiscal
year
2006, the Company and Landbank, LLC paid to Gaytan, Baumblatt & Leevan,
LLP an aggregate of $126,805 for accounting services rendered. Mr. Gaytan
may continue to provide accounting services to the Company and Landbank,
LLC in
the future. Mr. Gaytan does not serve as the Company's independent
auditor.
The
Company has assumed an agreement entered into between Landbank, LLC and
Investment Capital Researchers, Inc. on August 1, 2005, as amended, pursuant
to
which Investment Capital Researchers agreed to provide certain advisory and
finder services to Landbank, LLC and Company in connection with fundraising
opportunities. Consideration under this agreement payable to Investment Capital
Researchers is payable in shares of common stock of the Company. To date,
200,000 shares have been issued under this agreement. Stephen Weber, a director
of the Company, is the president of Investment Capital Researchers.
The
Company has funded its operations in part through loans from affiliates.
Each of
the affiliated companies is owned, or controlled, by Doug Gravink and Gary
Hewitt, both of whom are directors, and principal stockholders of Landbank
Group, Inc. The amounts owed under these loans are unsecured, have no stated
rates of interest, and have no maturity dates. Interest expense has been
imputed
on amounts due to related companies using a per annum rate of eight percent
(8%). The following is a summary of amounts owed to affiliated companies
as of
December 31, 2006:
|
Principal
|
Interest
|
Total
|
|||||||
|
John
Beck's Amazing Profits, LLC
|
$
|
448,377
|
$
|
(5,179
|
)
|
$
|
443,198
|
||
|
Mentoring
of America, LLC
|
60,788
|
6,311
|
67,099
|
||||||
|
HG,
Inc.
|
1,542,675
|
99,218
|
1,641,893
|
||||||
|
HG
Marketing, LLC
|
382,606
|
67,677
|
450,283
|
||||||
|
Family
Products, LLC
|
-
|
2,393
|
2,393
|
||||||
|
$
|
2,434,446
|
$
|
170,420
|
$
|
2,604,866
|
||||
On
January 26, 2006, in connection with the acquisition of Landbank, LLC, the
Company effected the transfer of an aggregate of 8,200,000 shares of
unregistered common stock (as adjusted for the subsequent 10:1 reverse split)
from four existing stockholders and officers of the Company (the transferring
stockholders), to Messrs. Gravink, Hewitt, and Beck in exchange for their
membership interests in Landbank, LLC. Simultaneously with this transaction,
as
consideration for the transfer of the shares by the transferring stockholders
and delivery of a release of claims, the Company agreed to convey all of
the
outstanding shares of iSNG, the prior operating subsidiary of the Company,
to
Thomas Makmann, the Company's former CEO and principal transferring stockholder,
plus a cash payment of $140,000. The transferring shareholders and their
respective percentage ownership of the Company immediately prior to closing
of
the foregoing transactions were as follows:
|
Thomas
Makmann
|
50
|
%
|
||
|
Gregory
Pelletier
|
13
|
%
|
||
|
James
R. Kirkland
|
13
|
%
|
||
|
Douglas
Donsbach
|
13
|
%
|
||
|
Total
|
89
|
%
|
Mr.
Makmann and the remaining transferring stockholders formed a new entity,
QED
Storage, to hold the shares in iSNG. The conveyance of iSNG to the transferring
shareholders was effected pursuant to a share purchase agreement entered
into
between the Company, as seller, and Thomas Makmann, as buyer. Under the terms
of
this agreement, Mr. Makmann received all outstanding shares of iSNG and $140,000
cash. In return, the Company received the following consideration: the
assumption by Mr. Makmann of all liabilities and obligations of iSNG, known
or
unknown; the transfer of 8,200,000 shares of the Company by the transferring
shareholders; a full release of claims against the Company; and the
representations, warranties, and joint and several indemnification obligations
of the transferring shareholders under the purchase agreement entered into
in
connection with the acquisition of Landbank, LLC. The transactions were
consummated concurrently on January 26, 2006. As of December 31, 2005, the
most
recent balance sheet date prior to the transaction, iSNG had $355,306 in
assets,
including $50,000 in prepaid software licenses and $296,916 in start-up costs,
and $724,288 in liabilities, consisting of accounts payable, notes payable,
and
accrued expenses. All of these assets and liabilities were transferred to
Mr.
Makmann. As of this balance sheet date and as of immediately prior to the
closing of the transactions, the Company had no assets or liabilities other
than
iSNG.
The
Company is not owned or controlled by a parent company. The former individual
members of Landbank, LLC, the Company's wholly-owned subsidiary acquired
in
January 2006, collectively own in their individual capacities a controlling
8,200,000 shares of the Company's 9,835,331 shares of common stock issued
and
outstanding as of December 31, 2006, representing approximately 83% of the
voting securities of the Company, as follows:
|
Gary
Hewitt
|
|
|
2,733,334
|
|
|
27.8
|
%
|
|
John
Beck
|
|
|
2,733,333
|
|
|
27.8
|
%
|
|
Doug
Gravink
|
|
|
2,733,333
|
|
|
27.8
|
%
|
|
|
|
|
8,200,000
|
|
|
83.4
|
%
|
Director
Independence
In
conjunction with the preparation of this registration statement, using the
definition of “independence” established by the NASDAQ Stock Market, we have
evaluated all relationships between each director and the Company.
Based
on
the foregoing definition, we have determined that none of our directors
currently meet the definition of an “independent” director under the standards
established by NASDAQ. We may take steps to appoint independent directors
to our
Board of Directors if and when we are able to identify appropriate candidates
willing to serve. Although they do not meet the definition of “independent” as
established by NASDAQ, the two members of our audit committee, Raymond Gaytan
and Stephen Weber are neither affiliated with nor employed by us. We do not
currently have a nominating or compensation committee.
Our
Board
of Directors will continually monitor the standards established for director
independence under applicable law or listing requirements and will take all
reasonable steps to assure compliance with those standards.
|
EXHIBIT
NUMBER
|
DESCRIPTION
|
|
|
|
|
|
|
2.1*
|
Stock
Purchase Agreement dated January 23, 2006 between iStorage Networks,
Inc.
and Landbank, LLC.
|
|
|
2.2*
|
Stock
Purchase Agreement dated January 23, 2006 between M. Thomas Makmann
and
iStorage Networks, Inc.
|
|
|
3.1*
|
Certificate
of Incorporation of the Company, formerly Camryn Information
Services,
Inc., dated May 13, 1997.
|
|
|
3.2*
|
Certificate
of Renewal and Revival of Charter dated October 29,
2004.
|
|
|
3.3*
|
Certificate
of Amendment to the Certificate of Incorporation to change name
to
iStorage Networks, Inc., dated November 8, 2004.
|
|
|
3.4*
|
Certificate
of Amendment to the Certificate of Incorporation to change name
to
Landbank Group, Inc., dated January 27, 2006.
|
|
|
3.5*
|
Certificate
of Amendment to the Certificate of Incorporation, dated June
29, 2006,
reflecting the reverse split of the Company’s common
stock.
|
|
|
3.6*
|
Amended
and Restated By-Laws of the Company adopted November 2,
2006.
|
|
|
10.1*
|
Agreement
with ICR dated August 1, 2005 as amended June 27, 2006.
|
|
|
10.2*
|
2006
Stock Incentive Plan
|
|
|
10.3*
|
Form
of Stock Option Agreement under 2006 Stock Incentive
Plan.
|
|
|
11
|
Statement
re computation of per share earnings (see Statement of Operations
and
Notes to Financial Statements).
|
|
|
21*
|
Subsidiaries
of the Company.
|
|
|
23
|
Consent
of Kabani & Company, Inc., independent auditors.
|
|
|
31.1
|
Certifications
of President and CEO required by Rule 13a-14(a) or Rule 15d-14(a)
of the
Securities Exchange Act.
|
|
|
31.2
|
Certification
of CFO required by Rule 13a-14(a) or Rule 15d-14(a) of the Securities
Exchange Act.
|
|
|
32.1
|
Section
1350 certifications by President and Chief Executive
Officer.
|
|
|
32.2
|
Section
1350 certification by Chief Financial
Officer.
|
|
*
|
Incorporated
by reference to Amendment No. 2 to the Registrant's Registration
Statement
on Form 10-SB, filed with the Securities and Exchange Commission
on
January 4, 2007.
|
Kabani
& Company, Inc. has audited the Company’s financial statements since fiscal
year 2005 (Kabani has audited the financial statements of Landbank, LLC since
fiscal year 2005; fiscal year 2006 will be Kabani’s first audit of the Company’s
financial statements), and the Audit Committee of the Board of Directors
of the
Company has selected Kabani & Company, Inc. as the Company’s independent
auditors to audit the financial statements of the Company for the fiscal
year
ending December 31, 2007.
Fees
Paid to Kabani & Company, Inc.
Audit
Fees
In
2006,
Kabani & Company, Inc. billed the Company an aggregate of $43,252 for the
audit of Landbank, LLC’s fiscal year 2005 annual financial statements and the
review of the Company’s fiscal year 2006 quarterly financial statements. Kabani
& Company, Inc. was retained by the Company in June 2006, so there were no
billings by Kabani to the Company prior to fiscal year 2006. The Company’s
current operations commenced in fiscal year 2005, with Kabani performing
the
audit in 2006 of the Company’s first completed year of operations.
Audit-Related
Fees
In
2006,
Kabani & Company, Inc. billed the Company an aggregate of $43,252, of which
$35,752 was for the audit of Landbank, LLC’s fiscal year 2005 financial
statements and the remaining $7,500 was for the quarterly review of the
Company’s fiscal year 2006 financial statements. The Company paid the entire
$43,252 during fiscal year 2006 and did not have an open balance with Kabani
as
of December 31, 2006. No other services were provided to the Company by Kabani
during fiscal year 2006, and no other fees were billed by Kabani nor paid
by the
Company during fiscal year 2006. As previously mentioned, Kabani was retained
by
the Company in June 2006 to audit/review the financial statements of the
Company’s current operations, so there were no audit/review fees of any kind
billed to the Company prior to fiscal year 2006.
Tax
Fees
During
fiscal year 2006, the Company recorded accounting/professional fees totaling
$126,805 that were billed to the Company by Gaytan, Baumblatt, & Leevan, LLP
(“GBL”), which is owned by Ray Gaytan, a Director of the Company (see note 7 of
the accompanying notes to the financial statements). These fees included
tax
advice and the preparation of the Company’s annual tax returns. GBL has prepared
all of the Company’s tax returns relating to its current operations. Kabani
& Company, Inc. has not provided any tax related services to the
Company.
All
Other Fees
In
2006
and 2005, Kabani & Company, Inc. did not bill the Company for professional
services other than the audit services and audit-related services described
above.
The
Audit
Committee has determined that the provision of non-audit services by Kabani
& Company, Inc. is compatible with maintaining auditor independence.
In
accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
| LANDBANK GROUP, INC. | ||
| |
|
|
| Date: March 30, 2007 | By: | /s/ Douglas Gravink |
| Douglas Gravink | ||
| CEO | ||
In
accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on
the
dates indicated.
|
SIGNATURE
|
TITLE
|
DATE
|
|
/s/Doug
Gravink
|
Chief
Executive Officer and Director
|
March
30, 2007
|
|
Doug
Gravink
|
(Principal
Executive Officer)
|
|
|
/s/Gary
Hewitt
|
President,
Secretary and Director
|
March
30, 2007
|
|
Gary
Hewitt
|
(Principal
Executive Officer)
|
|
|
/s/John
Genesi
|
Chief
Financial Officer
|
March
30, 2007
|
|
John
Genesi
|
(Principal
Financial Officer)
|
|
|
/s/John
Beck
|
Director
|
March
30, 2007
|
|
John
Beck
|
||
|
/s/Ray
Gaytan
|
Director
|
March
30, 2007
|
|
Ray
Gaytan
|
||
|
/s/Stephen
Weber
|
Director
|
March
29, 2007
|
|
Stephen
Weber
|
INDEX
TO
EXHIBITS
|
EXHIBIT
NUMBER
|
DESCRIPTION
|
|
|
|
|
|
|
2.1*
|
Stock
Purchase Agreement dated January 23, 2006 between iStorage
Networks, Inc.
and Landbank, LLC.
|
|
|
2.2*
|
Stock
Purchase Agreement dated January 23, 2006 between M. Thomas
Makmann and
iStorage Networks, Inc.
|
|
|
3.1*
|
Certificate
of Incorporation of the Company, formerly Camryn Information
Services,
Inc., dated May 13, 1997.
|
|
|
3.2*
|
Certificate
of Renewal and Revival of Charter dated October 29,
2004.
|
|
|
3.3*
|
Certificate
of Amendment to the Certificate of Incorporation to change
name to
iStorage Networks, Inc., dated November 8, 2004.
|
|
|
3.4*
|
Certificate
of Amendment to the Certificate of Incorporation to change
name to
Landbank Group, Inc., dated January 27, 2006.
|
|
|
3.5*
|
Certificate
of Amendment to the Certificate of Incorporation, dated June
29, 2006,
reflecting the reverse split of the Company’s common
stock.
|
|
|
3.6*
|
Amended
and Restated By-Laws of the Company adopted November 2,
2006.
|
|
|
10.1*
|
Agreement
with ICR dated August 1, 2005 as amended June 27, 2006.
|
|
|
10.2*
|
2006
Stock Incentive Plan
|
|
|
10.3*
|
Form
of Stock Option Agreement under 2006 Stock Incentive
Plan.
|
|
|
11
|
Statement
re computation of per share earnings (see Statement of Operations
and
Notes to Financial Statements).
|
|
|
21*
|
Subsidiaries
of the Company.
|
|
|
23
|
Consent
of Kabani & Company, Inc., independent auditors.
|
|
|
31.1
|
Certifications
of President and CEO required by Rule 13a-14(a) or Rule 15d-14(a)
of the
Securities Exchange Act.
|
|
|
31.2
|
Certification
of CFO required by Rule 13a-14(a) or Rule 15d-14(a) of the
Securities
Exchange Act.
|
|
|
32.1
|
Section
1350 certifications by President and Chief Executive
Officer.
|
|
|
32.2
|
Section
1350 certification by Chief Financial
Officer.
|
|
*
|
Incorporated
by reference to Amendment No. 2 to the Registrant's Registration
Statement
on Form 10-SB, filed with the Securities and Exchange Commission
on
January 4, 2007.
|
APPENDIX
F
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
DC 20549
FORM
10-QSB
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES
EXCHANGE ACT OF 1934
For
the period ended March 31, 2007
Commission
file number: 333-83231
LANDBANK
GROUP, INC
(Exact
Name of Registrant as specified in its charter)
|
Delaware
|
20-1915083
|
|
(State
of incorporation)
|
(IRS
Employer Identification No.)
|
|
7030
Hayvenhurst Avenue, Van Nuys, CA
|
91406
|
|
(Address
of principal executive offices)
|
(Zip
Code)
|
(818)
464-1614
(Registrant's
telephone number, including area code)
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
o
No
x
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes o
No
x
State
the
number of shares outstanding of each of the issuer's classes of common equity:
9,928,664 shares of Common Stock ($.001 par value) as of May 11,
2007.
Transitional
Small Business Disclosure Format (Check one): Yes o
No
x
|
TABLE
OF CONTENTS
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
PART
I Financial
Information
|
|
|
|
|
|
|
|
Item
1
|
2
|
|
|
|
2
|
|
|
|
3
|
|
|
|
4
|
|
|
|
5
|
|
|
|
|
|
|
Item
2
|
18
|
|
|
|
|
|
|
Item
3
|
29
|
|
|
|
|
|
|
PART
II Other
Information
|
|
|
|
|
|
|
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Item
1
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30
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Item
2
|
30
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Item
3
|
30
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Item
4
|
30
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Item
5
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30
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Item
6
|
30
|
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LANDBANK
GROUP, INC. AND SUBSIDIARY
Unaudited
Consolidated Financial Statements and Accompanying Notes
For
the Three Month Periods Ended March 31, 2007 and 2006
LANDBANK
GROUP, INC. AND SUBSIDIARY
Table
of Contents
|
Page
|
|
|
Consolidated
financial statements
|
|
|
Consolidated
Balance Sheet (Unaudited)
|
2
|
|
Consolidated
Statements of Operations (Unaudited)
|
3
|
|
Consolidated
Statements of Cash Flows (Unaudited)
|
4
|
|
Notes
to consolidated financial statements (Unaudited)
|
5 -
17
|
|
LandBank
Group, Inc. and Subsidiary
|
||||
|
As
of March 31, 2007
(Unaudited)
|
||||
|
ASSETS
|
||||
|
Current
assets
|
||||
|
Cash
& cash equivalents
|
$
|
439,251
|
||
|
Inventory
- land parcels
|
2,956,908
|
|||
|
Other
receivable
|
3,807
|
|||
|
Prepaid
expenses
|
189,279
|
|||
|
Total
current assets
|
3,589,245
|
|||
|
Property
& equipment, net
|
17,325
|
|||
|
Total
assets
|
$
|
3,606,570
|
||
|
LIABILITIES
AND SHAREHOLDERS' DEFICIT
|
||||
|
Current
liabilities
|
||||
|
Accounts
payable
|
$
|
94,906
|
||
|
Due
to related parties
|
|
2,767,987
|
||
|
Accrued
expenses
|
322,721
|
|||
|
Loan
payable - current portion
|
43,183
|
|||
|
Deferred
income
|
758,511
|
|||
|
Total
current liabilities
|
3,987,308
|
|||
|
Loan
payable - non-current portion
|
460,262
|
|||
|
Shareholders'
deficit
|
||||
|
Common
stock, 100,000,000 shares authorized; $0.0001
|
||||
|
par
value; 9,835,331 issued and outstanding
|
984
|
|||
|
Additional
paid in capital
|
413,461
|
|||
|
Accumulated
deficit
|
(1,255,445
|
)
|
||
|
Total
shareholders' deficit
|
(841,000
|
)
|
||
|
Total
liabilities and shareholders' deficit
|
$
|
3,606,570
|
||
The
accompanying notes are an integral part of these consolidated unaudited
financial statements
|
Landbank
Group Inc. and Subsidiary
|
|||||||
|
For
The Three Month Periods Ended March 31, 2007 and 2006
(Unaudited)
|
|||||||
|
2007
|
2006
|
||||||
|
Revenue,
net
|
$
|
901,707
|
$
|
1,657,341
|
|||
|
Cost
of revenue
|
|||||||
|
Direct
selling expenses
|
494,507
|
939,865
|
|||||
|
Royalty
to related party
|
142,520
|
251,117
|
|||||
|
Total
cost of sales
|
637,027
|
1,190,982
|
|||||
|
Gross
profit
|
264,680
|
466,359
|
|||||
|
Operating
expenses
|
|||||||
|
Rent,
related party
|
5,556
|
5,553
|
|||||
|
Professional
fees, related parties
|
5,383
|
30,700
|
|||||
|
Professional
fees
|
28,759
|
91,310
|
|||||
|
Legal
fees
|
63,777
|
71,703
|
|||||
|
Directors
and officers compensation
|
41,344
|
-
|
|||||
|
General
& administrative expenses
|
204,884
|
90,070
|
|||||
|
Total
operating expenses
|
349,703
|
289,336
|
|||||
|
Income
(loss) from operations
|
(85,023
|
)
|
177,023
|
||||
|
Other
expenses
|
|||||||
|
Merger-related
costs
|
-
|
(140,000
|
)
|
||||
|
Interest
expenses - bank
|
(12,411
|
)
|
(14,830
|
)
|
|||
|
Interest
expenses - related parties
|
(39,714
|
)
|
(18,549
|
)
|
|||
|
Total
other expenses
|
(52,125
|
)
|
(173,379
|
)
|
|||
|
Income
(loss) before income taxes
|
(137,148
|
)
|
3,644
|
||||
|
Provision
for income taxes
|
1,600
|
-
|
|||||
|
Net
income (loss)
|
$
|
(138,748
|
)
|
$
|
3,644
|
||
|
*Basic
and diluted weighted average number
|
|||||||
|
of
common stock outstanding
|
9,835,331
|
9,630,538
|
|||||
|
Basic
and diluted net income (loss) per share
|
$
|
(0.01
|
)
|
$
|
0.00
|
||
The
accompanying notes are an integral part of these consolidated unaudited
financial statements
*Basic
& diluted shares outstanding are considered same due to its anti-dilutive
nature.
|
LandBank
Group, Inc. and Subsidiary
|
|||||||
|
For
the Three Month Periods Ended March 31, 2007 and 2006
(Unaudited)
|
|||||||
|
|
|
||||||
|
2007
|
2006
|
||||||
|
Cash
flows from operating activities:
|
|
|
|||||
|
Net
income (loss)
|
$
|
(138,748
|
)
|
$
|
3,644
|
||
|
Adjustments
to reconcile net income (loss) to net cash
|
|||||||
|
Provided
by (used in) operating activities:
|
|||||||
|
Depreciation
- capital equipment
|
3,464
|
-
|
|||||
|
Options
granted to Directors & Officers
|
13,844
|
-
|
|||||
|
Changes
in current assets and liabilities:
|
|||||||
|
(Increase)
decrease in current assets
|
|||||||
|
Inventory
- land parcels
|
280,355
|
346,740
|
|||||
|
Other
receivable
|
4,736
|
-
|
|||||
|
Prepaid
expenses
|
24,896
|
196,557
|
|||||
|
Increase
(decrease) in current liabilities
|
|||||||
|
Accounts
payable
|
(39,297
|
)
|
43,466
|
||||
|
Accrued
expenses
|
(7,726
|
)
|
2,536
|
||||
|
Deferred
income
|
(36,156
|
)
|
(849,535
|
)
|
|||
|
Total
adjustments
|
244,116
|
(260,236
|
)
|
||||
|
Net
cash provided by (used in) operating activities
|
105,368
|
(256,592
|
)
|
||||
|
Cash
flows from investing activities
|
|||||||
|
Equipment
purchases
|
(20,789
|
)
|
-
|
||||
|
Cash
flows from financial activities
|
|||||||
|
Due
to related parties
|
98,138
|
(177,581
|
)
|
||||
|
Repayment
of loans
|
(9,436
|
)
|
(32,800
|
)
|
|||
|
Net
cash provided by (used) in financial activities
|
88,702
|
(210,381
|
)
|
||||
|
Net
increase (decrease) in cash and cash equivalents
|
173,281
|
(466,973
|
)
|
||||
|
Cash
and cash equivalents - beginning balance
|
265,970
|
631,425
|
|||||
|
Cash
and cash equivalents - ending balance
|
$
|
439,251
|
$
|
164,452
|
|||
|
Supplemental
disclosure of cash flows information:
|
|||||||
|
Taxes
paid
|
$
|
1,600
|
$
|
-
|
|||
|
Interest
paid
|
$
|
12,411
|
$
|
14,830
|
|||
The
accompanying notes are an integral part of these consolidated unaudited
financial statements
LANDBANK
GROUP, INC. AND SUBSIDIARY
1.
Nature
of business and significant accounting policies:
Nature
of business:
Landbank
Group, Inc., formerly known as iStorage Network, Inc. (“iStorage”), formerly
known as Camryn Information Services, Inc, was incorporated under the laws
of
the State of Delaware on May 13, 1997.
On
January 26, 2006, iStorage issued 8,200,000 shares of restricted stock
(post-split) in exchange for all of the assets and liabilities of Landbank,
LLC,
a company organized in the State of California in December 2004, and $140,000
in
cash. iStorage changed its name to Landbank Group, Inc. The former members
of
Landbank, LLC became approximately 90% owners of the Company.
The
exchange of shares with Landbank, LLC was accounted for as a reverse acquisition
under the purchase method of accounting since the stockholders of Landbank,
LLC
obtained control of the consolidated entity (collectively, “the Company”).
Accordingly, the merger of the two companies was recorded as a recapitalization
of Landbank, LLC, where as Landbank, LLC was treated as the continuing entity.
The historical results for the three month periods ended March 31, 2007 and
2006
include Landbank, LLC and Landbank Group, Inc. (from the acquisition
date).
The
Company makes bulk acquisitions of parcels of land, and resells the land
as
individual parcels. The Company seeks to acquire a majority of its land
“in-bulk” through the real property tax lien foreclosure process, either at
local government tax sales, directly from local government entities having
acquired property at tax sales, or directly from owners of tax-defaulted
parcels
prior to tax sale.
The
types
of real estate acquired and sold by the Company include undeveloped acreage,
houses, and lots. These parcels are marketed nationwide. To date, the Company
has acquired properties in Arizona, Colorado, Florida, Michigan, New Mexico,
Nevada, Oklahoma, New York, Pennsylvania, Texas, and in the State of Chihuahua,
Mexico.
The
Company resells the land as individual parcels through multiple distribution
channels, including Internet sales and leads developed by the Company, its
affiliates, or third party vendors. The Company also uses the Internet to
market
its properties.
The
Company shares its office space with its affiliates.
The
Company’s principal office is located in Van Nuys, California. The property is
leased from a real estate company related to the Company by common ownership
under a five-year lease that expires in 2008.
The
Company also has a satellite office in American Fork, Utah, a processing
and
acquisition office in Alameda, California, and a sales office in Phoenix,
Arizona. The Company shares office space at all three locations with its
affiliates.
Interim
Consolidated Financial
Statements
The
accompanying unaudited consolidated financial statements have been prepared
in
conformity with generally accepted accounting principles in the United States
of
America. However, certain information and footnote disclosures normally included
in financial statements prepared in accordance with generally accepted
accounting principles have been omitted or condensed, pursuant to the rules
and
regulations of the Securities and Exchange Commission ("SEC"). In the opinion
of
Landbank management, all adjustments of a normal recurring nature necessary
for
a fair presentation have been included. The results for periods are not
necessarily indicative of results for the entire year. These financial
statements and accompanying notes should be read in conjunction with our
annual
financial statements and the notes thereto for the year ended December 31,
2006,
included in our Annual Report on Form 10KSB, filed with the Securities and
Exchange Commission.
Summary
of significant accounting policies
The
following summary of significant accounting policies used in the preparation
of
these consolidated financial statements is in accordance with generally accepted
accounting principles.
Principles
of Consolidation
The
consolidated financial statements consist of the accounts of Landbank Group,
Inc. (“Parent”) and its wholly owned subsidiary Landbank, LLC, a California
Limited Liability Company (collectively “The Company”). All material
inter-company transactions have been eliminated in consolidation.
Concentration
The
Company maintains its cash in bank deposit accounts, which, at times, may
exceed
federally insured limits. The Company has not experienced any losses in such
accounts.
Inventory
The
Company’s inventory consists of land parcels that are purchased for resale
purposes, and, except for special circumstances, do not normally remain in
inventory for a prolonged period of time. The Company records its inventory
at
the lower of cost or fair market value at the relevant balance sheet date.
The
Company reviews its inventory on a quarterly basis in an attempt to (1) identify
“problem” properties that may become impaired (difficult or impossible to sell),
and (2) identify the financial impact, or impairment, to the recorded cost,
or
carrying value, of these properties. The Company attempts to measure impairment
on an item-by-item basis, but due to practical limitations, the Company also
measures impairment for a group of similar/related properties. The Company
considers properties to be similar/related if they are from the same subdivision
and/or geographic region. For the purpose of this discussion, the term
“property” refers to a specific property or a group of similar/related
properties.
The
Company recognizes inventory impairment at the time it’s incurred, which is at
the conclusion of the aforementioned quarterly reviews. Impairment charges,
or
write-downs to the recorded value of a property, occur when the estimated
fair
market value (FMV) of a property falls below the recorded, or carrying cost,
of
the associated property. The estimated FMV of a property is based on the
conditions that exist at the relevant balance sheet date, with consideration
being given to events after the relevant balance sheet date to the extent
that
they confirm conditions existing at or before the relevant balance sheet
date.
The Company’s quarterly inventory impairment reviews require the exercise of
judgment and take into consideration all relevant information available to
the
Company at the time the review is conducted. This periodic comparison of
comparable information determines if the value of our properties has become
impaired.
In
attempting to identify impaired properties, the Company begins by analyzing
recent trends in selling prices (EBay, Bid4Assets, real estate agent listings,
and the Company’s sales records) to establish the estimated fair market value
(FMV) of a property and then compares the estimated FMV to the recorded value
of
the property to ensure that the estimated FMV has not fallen below the recorded
value. Should it be determined that the estimated FMV is less than the recorded
value, the Company records the appropriate impairment charge at that time,
as it
writes down the value of the property to it’s estimated FMV, which does not
include any profit/markup.
The
Company also reviews its properties to identify problems/issues that may
reduce
a property’s value, such as, but not limited to, zoning issues, right of way
issues, and failed per tests. Any of these problems, and similar problems
not
previously mentioned, can have an adverse affect on the estimated FMV of
a
property and necessitate a write down of the recorded value of said property.
Should it be determined that such “problem” properties exist, the Company
records the appropriate impairment charge at that time, as it writes down
the
value of the property to it’s estimated FMV, which, as previously mentioned,
does not include any profit/markup.
The
Company’s return rates (the number of similar properties sold by the Company
that have been returned to the Company by the buyer) are also reviewed in
an
effort to gauge the favorability, or salability, of its properties. The purpose
of this review is to attempt to determine if certain properties (1) are not
in
favor with our Customer base, (2) are over priced, (3) the particular market
for
that property is saturated, or (4) are problem properties for some reason
unknown to the Company. Should it be determined that certain properties are
experiencing abnormally high return rates and may be difficult to sell at
an
estimated FMV above their recorded cost, the Company will record the appropriate
impairment charge at that time, as it writes down the value of the property
to
it’s estimated FMV.
The
Company’s impairment analysis is predicated on establishing an accurate estimate
of a property’s FMV. This estimate of FMV is based on the analysis of known
trends, demands, commitments, events and uncertainties. As previously stated,
the Company reviews all relevant information at its disposal at the time
its
impairment analysis is being performed, and uses that data to assess what
impairment charges, if any, have been incurred. However, estimated FMV can
be
difficult to establish and is contingent on market conditions, such as, but
not
limited to, supply and demand, local and national economic factors, and interest
rates. Any change in these market conditions, and similar conditions not
previously mentioned, could have a material impact on estimated FMV, and,
therefore, future inventory impairment charges incurred by the Company. Since
there is not always a readily available source for land values, the weight
of
all measures, as described above, are considered by management in it’s
impairment analysis.
Use
of estimates
The
process of preparing consolidated financial statements in conformity with
generally accepted accounting principles requires the use of estimates and
assumptions regarding certain types of assets, liabilities, revenues, and
expenses. Such estimates primarily relate to unsettled transactions and events
as of the date of the financial statements. Accordingly, upon settlement,
actual
results may differ from estimated amounts.
Recognition
of revenue and expenses
The
Company follows FASB 66 - Accounting for Sales of Real Estate. Substantially
all
of the Company’s land sales are all-cash transactions. The Company also had a
small, insignificant number of financing transactions through March 31, 2007.
Because the Company’s policy for the all-cash transactions is to allow the buyer
60 days to rescind his real estate purchase, and because the Company does
not
issue the deed of trust on a financing sale until the note is paid in full,
the
deposit method of accounting is used. Under the deposit method, revenues
and
their related expenses, including inventory, are not recognized until the
end of
the buyer’s 60-day rescission period, for the all-cash sales, and at the time
the note is paid in full for the financing transaction (also see note
4).
Issuance
of shares for service
The
Company accounts for the issuance of equity instruments to acquire goods
and
services based on the fair value of the goods and services or the fair value of
the equity instrument at the time of issuance, whichever is more reliably
measurable.
Recent
pronouncements
In
September 2006, FASB issued SFAS 157 ‘Fair Value Measurements’. This Statement
defines fair value, establishes a framework for measuring fair value in
generally accepted accounting principles (“GAAP”), and expands disclosures about
fair value measurements. This Statement applies under other accounting
pronouncements that require or permit fair value measurements, the Board
having
previously concluded in those accounting pronouncements that fair value is
the
relevant measurement attribute. Accordingly, this Statement does not require
any
new fair value measurements. However, for some entities, the application
of this
Statement will change current practice. This Statement is effective for
financial statements issued for fiscal years beginning after November 15,
2007,
and interim periods within those fiscal years. The management is currently
evaluating the effect of this pronouncement on the consolidated financial
statements.
In
September 2006, FASB issued SFAS 158 ‘Employers’ Accounting for Defined Benefit
Pension and Other Postretirement Plans—an amendment of FASB Statements No. 87,
88, 106, and 132(R)’ This Statement improves financial reporting by requiring an
employer to recognize the over funded or under funded status of a defined
benefit postretirement plan (other than a multiemployer plan) as an asset
or
liability in its statement of financial position and to recognize changes
in
that funded status in the year in which the changes occur through comprehensive
income of a business entity or changes in unrestricted net assets of a
not-for-profit organization. This Statement also improves financial reporting
by
requiring an employer to measure the funded status of a plan as of the date
of
its year-end statement of financial position, with limited exceptions. An
employer with publicly traded equity securities is required to initially
recognize the funded status of a defined benefit postretirement plan and
to
provide the required disclosures as of the end of the fiscal year ending
after
December 15, 2006. An employer without publicly traded equity securities
is
required to recognize the funded status of a defined benefit postretirement
plan
and to provide the required disclosures as of the end of the fiscal year
ending
after June 15, 2007. However, an employer without publicly traded equity
securities is required to disclose the following information in the notes
to
financial statements for a fiscal year ending after December 15, 2006, but
before June 16, 2007, unless it has applied the recognition provisions of
this
Statement in preparing those financial statements:
| 1. |
A
brief description of the provisions of this Statement
|
| 2. |
The
date that adoption is required
|
| 3. |
The
date the employer plans to adopt the recognition provisions of
this
Statement, if earlier.
|
The
requirement to measure plan assets and benefit obligations as of the date
of the
employer’s fiscal year-end statement of financial position is effective for
fiscal years ending after December 15, 2008. The management is currently
evaluating the effect of this pronouncement on the consolidated financial
statements.
In
February 2007, FASB issued FASB Statement No. 159, The Fair Value Option
for
Financial Assets and Financial Liabilities. FAS 159 is effective for fiscal
years beginning after November 15, 2007. Early adoption is permitted subject
to
specific requirements outlined in the new Statement. Therefore, calendar-year
companies may be able to adopt FAS 159 for their first quarter 2007 financial
statements.
The
new
Statement allows entities to choose, at specified election dates, to measure
eligible financial assets and liabilities at fair value that are not otherwise
required to be measured at fair value. If a company elects the fair value
option
for an eligible item, changes in that item's fair value in subsequent reporting
periods must be recognized in current earnings. FAS 159 also establishes
presentation and disclosure requirements designed to draw comparison between
entities that elect different measurement attributes for similar assets and
liabilities.
2.
Acquisition of LandBank, LLC
On
January 26, 2006, Landbank Group, Inc. acquired all of the membership interests
in Landbank, LLC in exchange for the transfer, by certain members of the
previous management, of an aggregate of 8,200,000 shares of Landbank Group,
Inc.’s stock (post-split), in exchange for which such members of previous
management received Landbank Group, Inc.’s former wholly-owned subsidiary,
iStorage Networks Group, Inc., and $140,000 in cash.
3.
Due to/from related parties
The
Company has amounts due to various related parties that are directors and
companies related through common ownership. These amounts are unsecured,
have no
stated rates of interest, and have no maturity dates. Interest expense has
been
imputed on amounts due to related companies using a per annum rate of eight
percent (8%). As of March 31, 2007, the Company had $2,767,986 due to related
parties. Interest expense to related parties for the three month periods
ended
March 31, 2007 and 2006 was $39,714 and $18,549, respectively.
|
As
of March 31, 2007
|
As
of March 31, 2006
|
||||||||||||||||||
|
Principal
|
Interest
|
Total
|
Principal
|
Interest
|
Total
|
||||||||||||||
|
John
Beck's Amazing Profits, LLC
|
$
|
543,773
|
$
|
-
|
$
|
543,773
|
$
|
(3,222
|
)
|
$
|
(3,849
|
)
|
$
|
(7,071
|
)
|
||||
|
Mentoring
of America, LLC
|
54,928
|
7,523
|
62,451
|
41,333
|
3,201
|
44,534
|
|||||||||||||
|
HG,
Inc.
|
1,546,679
|
130,067
|
1,676,746
|
467,405
|
18,672
|
486,077
|
|||||||||||||
|
HG
Marketing, LLC
|
382,606
|
75,330
|
457,936
|
582,606
|
36,721
|
619,327
|
|||||||||||||
|
Family
Products, LLC
|
-
|
2,393
|
2,393
|
-
|
2,393
|
2,393
|
|||||||||||||
|
Gaytan,
Baumblatt, Leevan
|
24,688
|
-
|
24,688
|
-
|
-
|
-
|
|||||||||||||
|
$
|
2,552,673
|
$
|
215,313
|
$
|
2,767,987
|
$
|
1,088,122
|
$
|
57,138
|
$
|
1,145,260
|
||||||||
Gaytan,
Baumblatt, & Leevan is an accounting firm owned by Ray Gaytan, a Director of
the Company (see note 11).
4.
Deferred revenue under the deposit
method
The
Company follows FASB 66 - Accounting for Sales of Real Estate (see note 1),
and
due to the Company’s 60-day refund policy, all sales transactions, and their
related direct expenses, are not recognized until after the expiration of
the
buyer’s 60-day rescission period. Therefore, the Company records these direct
expenses, which include royalties paid to an affiliate, sales commissions,
merchant fees, and processing fees, as prepaid expenses until the 60-day
buyer’s
rescission period has expired. As of March 31, 2007, deferred revenue totaled
$758,511. The following table details deferred revenue and the related direct
costs as of March 31, 2007:
|
Deferred
revenue
|
$
|
758,511
|
||
|
Direct
costs:
|
||||
|
Land
|
380,708
|
|||
|
Royalty
to affiliated party
|
65,282
|
|||
|
Processing
fees
|
42,950
|
|||
|
Merchant
fees
|
18,276
|
|||
|
Sales
commissions
|
29,433
|
|||
|
Total
direct costs
|
536,649
|
|||
|
Gross
profit
|
$
|
221,862
|
||
|
As
a % of net revenue
|
29.2
|
%
|
Selling
expenses include a royalty paid to John Beck’s Amazing Profits, LLC (“JBAP”)(see
note 11) equal to 35% of the gross profit on sales resulting from a lead
provided by JBAP, 5% sales commission, credit card merchant fees, trust deed
transfer costs of $50 per transaction, and property assessment
fees.
5.
Loans Payable
In
August
2005, the Company purchased certain sections of land in Pershing County,
Nevada
subject to loans from Western Title Company. Each of the 18 sections of land
secures their respective loan. The loans bear interest at 10% per annum and
mature September 1, 2015, unless the corresponding real estate is sold sooner,
in which case, the loan must be repaid.
During
the three month period ended March 31, 2007, the Company made total principal
payments of $9,436 and interest payments of $12,411. As of this filing, the
Company is current on its payment obligations.
The
scheduled principal payments on these notes are as follows:
|
Years
ended
|
|
|
|
|
March
31,
|
|
|
|
|
|
|
|
|
|
2008
|
|
$
|
40,183
|
|
2009
|
|
|
44,391
|
|
2010
|
|
|
49,039
|
|
2011
|
|
|
54,174
|
|
2012
|
|
|
59,847
|
|
Thereafter
|
255,811
|
||
|
Total
|
503,445
|
||
|
Current
portion
|
43,183
|
||
|
Long-term
portion
|
$
|
460,262
|
|
6.
Prepaid Expenses
Prepaid
expenses totaled $189,279 as of March 31, 2007 and consisted of rent, insurance,
audit fees, travel advances, and direct costs associated with the Company’s
deferred revenue. The Company follows FASB 66 - Accounting for Sales of Real
Estate (see note 1), and due to the Company’s 60-day refund policy, all sales
transactions, and their related direct expenses, are not recognized until
after
the expiration of the buyer’s 60-day rescission period. Therefore, the Company
records these direct expenses, which include royalties paid to an affiliate,
sales commissions, merchant fees, and processing fees, as prepaid expenses
until
the 60-day buyer’s rescission period has expired. Prepaid rent represents the
last monthly rent payment due on the Company’s office in Alameda, California,
and prepaid insurance relates to both the Company’s general liability and
directors & officers insurance policies and are expensed over the one-year
term of the policies. The audit fees are in relation to the Company’s fiscal
year 2006 audit and are being expensed over the twelve month period beginning
in
January 2007 and ending in December 2007. The following table details prepaid
expenses as of March 31, 2007:
|
As
of 3/31/07
|
|||
|
Rent
|
2,368
|
||
|
Insurance
|
7,970
|
||
|
Audit
fees
|
22,500
|
||
|
Travel
advance
|
500
|
||
|
Merchant
fees
|
18,276
|
||
|
Sales
commissions
|
29,433
|
||
|
Royalties
to an affiliate
|
65,282
|
||
|
Processing
fees
|
42,950
|
||
|
189,279
|
|||
7.
Property & Equipment
As
of
March 31, 2007, the Company had net property & equipment totaling $17,325,
which consisted of computers and related computer hardware. These assets
were
purchased for use in the Company’s Alameda office and were put into service in
February 2007. These assets were recorded at their cost of $20,789, which
included the purchase price, tax, and freight. The Company is depreciating
these
assets over a twelve (12) month period beginning February 2007, with the
monthly
depreciation totaling $1,732. During the three month period ended March 31,
2007, the Company recorded depreciation expense of $3,464.
8.
Accounts Payable
Accounts
payable consist of normal expenses incurred during the course of business,
and
the Company’s payables are current with regard to vendor terms. Accounts payable
totaled $94,906 as of March 31, 2007, with three vendors accounting for
approximately $85,800 of the total. Approximately $64,000 was owed to the
Company’s outside attorneys, $15,000 was owed to the Company’s independent
outside auditors (this balance was paid in full on April 12, 2007), and an
additional $6,800 was due to a consultant retained by the Company to assist
in
locating properties for the Company to purchase.
9.
Accrued Expenses
Accrued
expenses totaled $322,721 as of March 31, 2007 and consisted of $155,000
owed to
Piping Partners Holdings, LLC (see note 13), $84,000 related to shares to
be
issued to a consultant (see note 10), $55,796 in accrued payroll and related
expenses, $7,500 in accrued audit fees, $20,000 in accrued legal fees, and
$425
in accrued insurance.
10.
Stockholders’ Deficit
Retro-active
recapitalization of shares outstanding
As
stated
above in note 2, the Company acquired all of the membership interests of
Landbank, LLC on January 26, 2006. As a result, the Company’s stockholder equity
was retroactively restated to reflect the equivalent number of shares received
in the merger, which was 8,200,002 as adjusted for the 1 for 10 reverse stock
split on June 30, 2006 (82,000,000 pre-split). Stockholders’ equity was $82,373
as of December 31, 2005.
Common
Stock Issued
The
Company did not issue any shares of its common stock during the three month
period ended March 31, 2007. The only equity transaction during the same
period
in fiscal year 2006 was the above mentioned transfer of shares relating to
the
acquisition of Landbank, LLC (see note 2).
Common
Stock to be issued
Pursuant
to the terms of its agreement with Aurelius Consulting Group, Inc. (see note
9),
the Company is to issue shares worth $12,000 per month to Aurelius as
compensation for services provided. As of March 31, 2007, the Company had
accrued $84,000 as a current liability in relation to shares owed to Aurelius
for services provided. The $84,000 represents the final compensation owed
to
Aurelius per the terms of the above referenced agreement, and the entire
$84,000
of accrued expense was recorded as of December 31, 2006.
On
April
4, 2007, the Company issued 93,333 shares of its common stock as payment
in full
for the $84,000 in accrued professional fees. The total number of shares
of the
Company’s common stock issued and outstanding immediately after the issuance of
the 93,333 shares was 9,928,664.
Stock
Split
On
March
3, 2006, the Company obtained written consent from stockholders holding a
majority of the Company’s outstanding shares of voting securities to authorize a
reverse split of the Company’s outstanding common stock. Pursuant to the terms
of the written consent, the Company completed a 1 for 10 reverse split of
its
common stock, with special treatment for certain Company shareholders to
preserve round lot shareholders. The following is a summary illustrating
the
effect of the reverse stock split:
|
Post-Split
|
|
Pre-Split
|
||||
|
Par
Value
|
$
|
0.0001
|
$
|
0.00001
|
||
|
Authorized
number of shares
|
100,000,000
|
1,000,000,000
|
||||
|
Shares
issued and outstanding
|
9,206,597
|
92,052,000
|
||||
All
fractional shares are rounded up and the authorized
shares were reduced to 100,000,000. The financial statements have been
retroactively restated for the effects of the above stock
splits
11.
Related-party transactions
The
Company pays a royalty to related companies equal to 35% of gross profit
received by the Company on each all-cash sale generated by leads provided
by
that related company. Gross profit is defined as land sale revenue reduced
by
inventory cost, sales commissions, credit card merchant fees, and deed of
trust
transfer costs. The related companies are indirectly owned and controlled
by two
of the Company’s principal stockholders, who are also officers and directors of
the Company. A third director of the Company receives a profit participation
of
50% of the royalty payments received by one of the related companies, pursuant
to its royalty agreement with the Company, for his services to that related
company. During the three month periods ended March 31, 2007 and 2006, the
Company recorded royalty expense to related parties of $142,520 and $251,117,
respectively. The Company had prepaid royalty expense to related parties
of
$65,282 as of March 31, 2007 (see note 4).
The
Company has an agreement with Investment Capital Researchers, Inc. (“ICR”), a
Company owned by a member of the Company’s Board of Directors. Pursuant to the
agreement, ICR received 200,000 shares (post-split) of the Company’s common
stock on June 30, 2006 and may receive an additional 200,000 shares of the
Company’s common stock (post-split) upon the achievement of specified
milestones. Under the terms of the agreement, the issued shares can only
be sold
or transferred over a four-year period at the rate of 100,000 on each
anniversary of the closing date of a secondary offering. All shares issued
pursuant to this agreement will be restricted securities. The 200,000 shares
issued on June 30, 2006 were valued at $120,000 based on fair value of the
shares at the time of issuance. The Company expensed the entire $120,000
as
non-cash consulting fees during the six month period ended June 30,
2006,
The
Company shares
its principal office in Van Nuys and its offices in both American Fork and
Alameda with related parties. The Company does
not
pay rent for its Van Nuys and American Fork facilities, but, if it were required
to pay rent on these facilities, the Company estimates the combined monthly
rent
value being approximately $1,200, which the Company deems as not material.
The
related parties are companies owned and controlled by two of the
Company’s
principal
stockholders, who are officers and directors of the Company. The Company's
office in Phoenix, Arizona is subleased from a related company owned by two
of
the Company’s directors. Under the terms of the sublease arrangement, the
Company pays a pro rata share of the rent paid by the related company, based
upon the portion of the space occupied by the Company. During the three month
periods ended March 31, 2007 and 2006, the Company recorded related party
rent
expense totaling $5,556 and zero, respectively.
On
December 22, 2006, the Company entered into a lease for approximately 1,200
square feet of office space in Alameda, California. The lease is for a term
of
twenty-five (25) months, commencing January 1, 2007. Per the terms of the
lease,
the first month is rent-free, with a base rent of $2,295 per month for months
two (2) through twelve (12) and $2,366 per month for months thirteen (13)
through twenty-five (25). The Company is also responsible for paying its
pro-rated share of certain expenses, such as property taxes. The monthly
rent
and related expenses for the Alameda office are to be allocated to both the
Company and its affiliate, Mentoring of America, LLC (“MAC”), with each company
paying 50% of the expenses associated with maintaining this office.
The
following table details the Company’s rent expense commitments per the terms of
the applicable lease agreements. The Company’s lease for its Arizona office
expires in January 2008, while the lease for its Alameda office expires in
January 2009. These two leases represent the only office leases currently
entered into by the Company.
|
2007
|
2008
|
2009
|
||||||||
|
Arizona
Office
|
$
|
22,224
|
$
|
1,852
|
$
|
-
|
||||
|
Alameda
Office
|
12,623
|
14,196
|
1,183
|
|||||||
|
Total
|
$
|
34,847
|
$
|
16,048
|
$
|
1,183
|
||||
A
director of the Company has, through his accounting firm, provided accounting
service to the Company. The Company recorded related party accounting expense
totaling $5,383 during the three month period ended March 31, 2007. The Company
incurred $30,700 in related party accounting expense during the same period
in
fiscal year 2006.
The
Company currently pays no salary or other compensation to its Chief Executive
Officer or President. The Company’s Chief Financial Officer is paid an annual
base salary of $110,000 for 2007.
12.
Concentration of Credit Risk
The
Company maintains certain cash balances with a commercial bank. The Company’s
cash balance of $439,251 as of March 31, 2007 was approximately $339,251
above
insured limits.
13.
Commitments
Joint
Marketing Agreement with Aurelius Consulting Group, Inc.
On
May
26, 2006, the Company entered into a Joint Marketing Agreement (the “Agreement”)
with Aurelius Consulting Group, Inc. /Red Chip Companies (“ACG/RC”) to assist in
marketing the Company to the investment community. ACG/RC, per the terms
of the
Agreement, will among other public relations and investor relations activities,
distribute both a research report and a newsletter to the investment
community.
In
return
for the above mentioned services, the Company was to pay ACG/RC a total of
$150,000 in cash and restricted shares of the Company’s common stock. The cash
portion totaled $44,000, with $20,000 down and $24,000 in eight monthly
installments of $3,000 each. The remaining $106,000 was to be paid in stock,
with $10,000 to be paid immediately and the remainder in eight monthly
installments of $12,000 each. As of December 31, 2006, the Company had recorded
all of the expenses relating to its agreement with ACG/RC.
As
of
March 31, 2007, the Company had paid ACG/RC $41,000 in cash, with the remaining
$3,000 of the cash portion recorded under accounts payable, and had issued
24,445 shares (post-split) of stock valued at $14,667 based on fair value
of the
shares at the time of issuance, which was expensed as professional fees during
the six month period ended June 30, 2006. As of March 31, 2007, the Company
had
an $84,000 accrued liability relating to the shares owed to ACG/RC for services
provided. As previously stated, the $84,000 expense had been recorded as
of
December 31, 2006.
On
April
4, 2007, the Company issued 93,333 shares of its common stock as payment
in full
for the $84,000 in accrued professional fees. The total number of shares
of the
Company’s common stock issued and outstanding immediately after the issuance of
the 93,333 shares was 9,928,664.
Agreement
with Piping Partners Holdings, Inc.
On
January 25, 2006, the Company entered into an agreement with Piping Partners
Holdings, LLC (“PPH”) to assist the Company in seeking quotation of the
Company’s shares on the Over the Counter Bulletin Board (“OTCBB”).
Per
terms
of this agreement with PPH, the Company agreed to pay PPH a success fee,
which
includes any and all application and filing fees and expenses, of $235,000,
which is to be paid upon active quotation, with PPH’s assistance, of the
Company’s shares on the OTCBB, less any advance amounts, and a $10,000 advance
for legal services engaged by PPH, and approved by the Company, in connection
with the Exchange Act Reports.
|
As
of March 31, 2007, the Company had paid PPH the above mentioned
$10,000
advance for legal services and an additional $70,000 advance towards
fees
incurred by PPH in relation to their services provided to the Company.
The
remaining $155,000 owed to PPH was recorded as an accrued liability
as of
March 31, 2007.The entire $235,000 owed to PPH was expensed during
the
Company’s fiscal year 2006, which ended December 31,
2006.
|
14.
Options Granted to Directors and Officers
On
November 2, 2006, the Board of Directors adopted, by written consent, the
2006
Stock Incentive Plan (“the Plan”). On November 9, 2006, the adoption of the Plan
was approved and ratified by written consent signed by the holders of a majority
of the Company’s stock. Per the terms of the Plan, the Company is authorized to
reserve 3,000,000 shares of the Company’s authorized and unissued shares of
common stock for issuance pursuant to the Plan.
On
March
13, 2007, the Company granted an option to its Chief Financial Officer (“CFO”)
to purchase 100,000 shares of the Company’s common stock at an exercise price of
$0.02 per share. The option vests over a four (4) year period, with 25 %
vesting
of the shares vesting on March 12, 2008 and the remaining shares vesting
at
1/48th
per
month thereafter until the option is vested and exercisable with respect
to 100%
of the shares. The term of the option is ten (10) years, with an expiration
date
of March 12, 2017. The option grant was valued at $2,000 as of the date of
grant
using the Black-Sholes option pricing model in accordance with FAS 123R using
the following assumptions: volatility of 469.34%, Wall Street Journal prime
interest rate of 4.69%, zero dividend yield, and an expected life of four
(4)
years. The Company expensed the entire $2,000 value of the option during
the
three month period ended March 31, 2007.
On
December 28, 2006, the Company granted options to two of its Directors, one
of
whom is the Company’s Chief Executive Officer and the other the President, in
consideration of their service as Directors of the company. Each Director
was
granted an option to purchase 100,000 shares of common stock at an exercise
price of $0.12 per share, the fair value of the Company’s common stock on the
date of grant, in consideration of their service as a director of the company.
Each option grant was valued at $11,681 as of the date of grant using the
Black-Sholes option pricing model in accordance with FAS 123R using the
following assumptions: volatility of 191.06%, risk free interest rate of
4.69%,
dividend yield of zero, and expected life of five (5) years. Each of the
options
vests as follows: 50% of the shares subject to each option will vest upon
achievement of a specified performance goal related to the Company’s stock price
and the remainder will vest on a quarterly basis thereafter at a rate of
25% per
quarter. The options will not vest and the options will expire in the event
that
the performance goal is not achieved within the timeframe specified by the
goal.
The term of the option, and the implied service condition, is one year from
the
date of grant, so the Company began expensing the value of these options,
$1,948
per month ($974 per option), over the twelve-month term beginning in December
2006. Accordingly, the Company recorded $5,844 in expense relating to these
option grants during the three month period ended March 31, 2007.
On
November 9, 2006, the Company granted options to each of its two independent
directors to acquire 1,200,000 shares (600,000 shares per director) of the
Company’s common stock pursuant to the Plan. Each option grant was valued at
$59,963 ($119,926 in the aggregate) as of the date of grant using the
Black-Sholes option pricing model in accordance with FAS 123R using the
following assumptions: volatility of 125.95%, risk free interest rate of
4.60%,
dividend yield of zero, and expected life of five (5) years. The options
vest as
follows: 20% of the shares subject to each option vested on December 31,
2006
and 20% of the shares subject to each option vest each year thereafter. During
the year ended December 31, 2006, the Company recorded $23,986 of compensation
based on the fair value method under FAS 123R and is expensing the remaining
value of the options at the rate of $2,000 per month until the entire $119,926
has been expensed. The Company expensed $6,000 in relation to these options
during the three month period ended March 31, 2007.
The
Company adopted SFAS No. 123-R effective November 1, 2006 using the
modified prospective method. Under this transition method, stock compensation
expense recognized in the year ended December 31, 2006 includes compensation
expense for all stock-based compensation awards granted on or after
November 1, 2006, based on the grant-date fair value estimated in
accordance with the provisions of SFAS No. 123-R.
Following
is a summary of the stock option activity:
|
Options
outstanding
|
Weighted
Average Exercise Price
|
Aggregate
Intrinsic Value
|
|||||||
|
Outstanding,
December 31, 2006
|
1,400,000-
|
-
|
-
|
||||||
|
Granted
|
100,000
|
-
|
-
|
||||||
|
Forfeited
|
-
|
-
|
-
|
||||||
|
Exercised
|
-
|
||||||||
|
Outstanding
March 31, 2007
|
1,500,000
|
$
|
0.02
|
-
|
|||||
Following
is a summary of the status of options outstanding at March 31, 2007:
|
Outstanding
Options
|
Exercisable
Options
|
||||||||||||||
|
|
|
||||||||||||||
|
Exercise
Price
|
Number
|
Average
Remaining Contractual Life
|
Average
Exercise Price
|
Number
|
Average
Exercise Price
|
||||||||||
|
$0.0001
|
1,200,000
|
|
|
4.86
|
|
$
|
0.0001
|
|
|
240,000
|
|
$
|
0.0001
|
||
|
$0.12
|
|
|
200,000
|
|
|
4.99
|
|
$
|
0.12
|
|
|
-
|
|
$
|
0.12
|
|
$0.02
|
|
|
100,000
|
|
|
3.95
|
|
$
|
0.02
|
|
|
-
|
|
$
|
0.02
|
15.
Going
Concern
The
accompanying consolidated financial statements have been prepared in conformity
with generally accepted accounting principles which contemplate continuation
of
the company as a going concern. However, the Company has an accumulated deficit
of $1,255,445 as of March 31, 2007, including a net loss of $138,748 for
the
three month period ended March 31, 2007. The Company’s total liabilities
exceeded its total assets by $841,000 as of March 31, 2007. In view of the
matters described above, recoverability of a major portion of the recorded
asset
amounts shown in the accompanying consolidated balance sheet is dependent
upon
continued operations of the company, which in turn is dependent upon the
Company’s ability to raise additional capital, obtain financing and succeed in
its future operations. The financial statements do not include any adjustments
relating to the recoverability and classification of recorded asset amounts
or
amounts and classification of liabilities that might be necessary should
the
Company be unable to continue as a going concern.
Management
has taken the following steps to revise its operating and financial
requirements, which it believes are sufficient to provide the Company with
the
ability to continue as a going concern
| 1. |
Hired
additional Land Acquisition Specialists to help acquire more properties,
as well as a more diversified mix of properties, that will allow
the
Company to increase sales volume while minimizing the risk of saturating
a
particular market, or geographic location, and thereby adversely
affecting
the ability of the Company’s customers to resell their properties at a
profit.
|
| 2. |
Hired
consultants to assist the Company in securing additional financing
(see
note 13).
|
Management
believes that actions presently being taken to (1) obtain additional funding,
and (2) implement its strategic plans provide the opportunity for the Company
to
continue as a going concern. Furthermore, two of the principal shareholders
have
demonstrated both their ability and willingness to lend working capital to
the
Company and are committed to doing so into the future. As of March 31, 2007,
these principal shareholders have directly, and indirectly, lent the company
$2,743,299 (see note 3).
ITEM
2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED
MARCH
31, 2007
The
following discussion of our financial condition and results of operations
should
be read in conjunction with our financial statements and the notes to those
statements included elsewhere in this Form 10-QSB filing. In addition to
the historical financial information, the following discussion and analysis
contains forward-looking statements that involve risks and uncertainties.
Our
actual results may differ materially from those anticipated in these
forward-looking statements as a result of certain factors, including those
set
forth under "Risk Factors" and elsewhere in this Form 10-QSB
filing.
The
Company acquired Landbank, LLC and its real property operations in January
2006.
Concurrent with this acquisition, there was also a change in management and
principal ownership of the Company. Prior to its acquisition of Landbank,
LLC,
the Company was engaged, through its former operating subsidiary, iStorage
Networks, Inc (iSNG), in the development of computer network storage solutions.
From 1999 through November 2004, the Company was dormant, with no operations.
It
was only during the period from November 2004 to December 2005 that the Company,
as iSNG, was operational. Landbank, LLC had only a limited operating history
prior to being acquired by the Company, commencing operations in the second
quarter of 2005 and had no operations, assets or liabilities as of December
31,
2004.
Since
January 2006, the Company has been engaged solely in the business of acquiring
parcels of land in bulk, primarily through the real property tax lien
foreclosure process, and then reselling the land as individual parcels. The
Company’s business is asset intensive. Since the business is predicated on
identifying, repackaging, and selling properties, long-term investment decisions
do not play a significant role. Interest rate trends do not necessarily impact
the Company’s business; as such rates tend to produce a canceling effect in
terms of both the purchase and the resale prices.
We
currently have operations in nine states, and have also acquired properties
in
Mexico. We are not dependent on any single customer and no customer represents
over 10% of our total revenues.
The
objective of the Company is to achieve and sustain a manageable growth rate
that
will enable it to become a market leader in its field. Management believes
that
this objective can be achieved by expanding the Company’s “direct to consumer”
marketing efforts, developing networking responsiveness to assess buyer
satisfaction, and dedicating additional resources to acquisition efforts.
To
date, marketing efforts have indicated that customers who buy may have a
recurring need to buy for investment and/or resale purposes. Consequently,
each
customer represents the potential for multiple sales. The fact that the Company
operates in several geographical regions tends to mitigate any seasonal or
regional factors that might impact its business operations.
The
Company finances its operations by loans from affiliated companies and revenues
generated from operations. From the commencement of operations in the second
quarter of 2005 through March 31, 2007, the Company had net borrowings from
its
affiliates, including accrued interest, of $2,767,987 and net revenues
totaling $6,722,286, of which $1,835,891 was gross profit, which is defined
as
revenue less the cost of the land, processing fees, merchant fees, dues and
taxes, and royalties. We derive revenue solely from the sale of the properties
we acquire.
We
incur
the following costs of revenue:
Operating
Expenses
Sales
and Marketing Expense:
Our
sales and marketing expenses, excluding royalty agreements, consist primarily
of
personnel costs for our sales and marketing staff, sales commissions, travel
and
lodging, marketing programs, allocated facilities, and other related overhead.
We pay commissions as we recognize revenue and collect receivables.
Acquisition
Team:
We have
a team of six acquisition specialists responsible for identifying and acquiring
suitable properties. Expenses consist primarily of personnel costs for team
members, purchase commissions, travel and lodging, and other related overhead.
We pay commissions only upon completion of the purchase transaction, including
transfer of the deed.
General
and Administrative Expenses:
Our
general and administrative expenses consist of personnel costs for executives
and staff (finance/accounting and human resources), as well as costs relating
to
travel and lodging, accounting/audit services, legal and other professional
services, and other costs incurred during the normal course of
operations.
Acquisition
Costs: To
date we
have
acquired all of our properties, with the exception of certain parcels in
Nevada,
for cash. The average cost of properties that we acquire varies depending
on the
size, location and other specific characteristics of each property.
Income
Taxes:
Our
income tax expense includes the tax obligations for the multiple tax
jurisdictions in which we operate. The income tax expense is affected by
the
profitability of our operations in the jurisdictions in which we operate,
the
applicable tax rate for these jurisdictions, and our tax policies. We make
significant estimates in determining our consolidated income tax expense.
If our
actual amounts differ from these estimates, our provision for income taxes
could
be materially impacted.
Royalty
payment: We
derive
a significant number of customers from databases developed by certain of
our
affiliates. Pursuant to royalty agreements, we pay a royalty to these affiliates
equal to 35% of gross profits (less acquisition costs) earned by us on any
cash
sale of a property to a customer referred to us under these royalty agreements.
Our ability to draw on these customer databases significantly reduces our
direct
sales and marketing expenses.
In
the
future, the Company intends to continue to make use of its affiliate databases,
but also hopes to develop other distribution methods, particularly where
the
Company acquires a significant number of lots in one area. The Company intends
to expand its purchasing of suitable properties to include as many different
states/geographic regions as its current resources will allow.
COMPARISON
OF THE THREE MONTHS ENDED MARCH 31, 2007 TO THE THREE MONTHS ENDED MARCH
31,
2006
Results
of Operations
Net
revenue for the three month period ended March 31, 2007 was $901,707, which
represents a decrease of $755,634, or 45.6%, from the $1,657,341 recorded
during
the same period in fiscal year 2006. The decrease in net revenue is the result
of fewer properties being sold during the period ended March 31, 2007 as
compared to the same three month period in 2006. The total number of properties
sold in the three month period ended March 31, 2007 was 388, a decrease of
743
units, or 65.6%, from the 1,131 units sold during the same period in fiscal
year
2006. The decrease in the number of units sold is primarily attributable
to the
Company’s lack of a diversified inventory of properties to sell, which limits
the number of properties that the Company can sell as it must be careful
not to
sell too many properties in one particular market, or geographic region,
and
risk saturating that particular market and adversely affecting the ability
of
the Company’s customers to resell their property at a profit. The continued
diversification of the Company’s mix of properties sold is an important aspect
of its business strategy, as a diversified portfolio of properties to sell
may
allow the Company to significantly increase both sales volume and net revenue
while potentially minimizing the risk of flooding, or saturating, a particular
market with properties and adversely affecting our customers’ ability to resell
their property at a profit. Although the number of properties sold decreased
from the same period in fiscal year 2006, the average selling price increased
by
$859 per property sold, or 58.6%, from an average of $1,465 per property
sold in
the first quarter of fiscal year 2006 to an average of $2,324 per property
sold
in the first quarter of fiscal year 2007. The increase in the average selling
price is primarily attributable to the Company offering higher quality
properties that, in some cases, were larger and in better locations then
properties sold during the three month period ended March 31, 2006.
The
following table details the number of properties sold, the state in which
the
properties sold were located, and the net revenue generated by the properties
sold for the three month periods ended March 31, 2007 and 2006:
|
Three
Months Ended March 31,
|
||||||||||||
|
2007
|
2006
|
|||||||||||
|
Units
|
Revenue
(000s)
|
Units
|
Revenue
(000s)
|
|||||||||
|
Arizona
|
4
|
$
|
6.2
|
-
|
$
|
-
|
||||||
|
Colorado
|
7
|
56.3
|
-
|
-
|
||||||||
|
Florida
|
(1
|
)
|
(9.5
|
)
|
-
|
-
|
||||||
|
New
Mexico
|
(1
|
)
|
(6.1
|
)
|
-
|
-
|
||||||
|
Oklahoma
|
8
|
5.3
|
251
|
421.3
|
||||||||
|
Pennsylvania
|
172
|
482.8
|
842
|
70.8
|
||||||||
|
Texas
|
199
|
366.7
|
38
|
1,165.2
|
||||||||
|
388
|
$
|
901.7
|
1,131
|
$
|
1,657.3
|
|||||||
Cost
of
goods sold during the three month period ended March 31, 2007 totaled $637,027,
a decrease of $553,955, or 46.5%, from the $1,190,982 incurred during the
same
period in fiscal year 2006. The decrease in cost of goods sold is attributable
to the decrease in the number of properties sold, as the Company sold 743
fewer
properties during the three month period ended March 31, 2007 as compared
to the
same period in 2006. The average cost per property sold during the three
month
period ended March 31, 2007 was $1,642 as compared to $1,053 during the same
period in fiscal year 2006. The average land cost increased by 46.6%, from
an
average of $652 per property sold during the three month period ended March
31,
2006 to $956 per property sold during the same period in fiscal year 2007.
This
increase is attributable to the improved quality (size, location, amenities,
etc) of the properties sold during the three month period in fiscal year
2007 as
compared to the same period last year. Royalties paid to an affiliated company
averaged $367 per property sold during the March 31, 2007 period, an increase
of
$145, or 65.3%, as compared to the $222 per property sold during the same
period
in fiscal year 2006. The increase in royalties is due to the higher gross
profit
achieved by the Company, which results in an increase in the royalty owed
to the
affiliated company (see note 11 of the accompanying notes to the financial
statements). The average sales commission paid per property sold was $103
during
the three month period ended March 31, 2007, which represents an increase
of
$48, or 87.3%, as compared to the average sales commission of $55 per property
sold during the same period in fiscal year 2006. Sales commissions paid are
based on a percentage of the gross selling price of each property sold by
the
Company’s sales personnel, so the increase in the average selling price of the
properties sold during the three month period ended March 31, 2007 (see revenue
explanation above), as compared to the same period in fiscal year 2006, resulted
in higher average sales commissions per property sold. Processing fees averaged
$133 per property sold during the period ended March 31, 2007, an increase
of
$68, or 105%, from the $65 per property sold that was averaged during the
same
period last year. Processing fees are, for the most part, dictated by
individuals and agencies who are not controlled by the Company, so the increase
in processing costs represents higher fees being charged to the Company by
the
various individuals and agencies that process the deeds and other paperwork
associated with the buying and selling of the Company’s properties. The average
merchant fee per property sold during the period ended March 31, 2007 was
$82,
an increase of $44, or 116%, as compared to the $38 average that was incurred
during the same period in fiscal year 2006. Merchant fees, much like sales
commissions, are calculated on the gross selling price of the property sold,
so
the significant increase in the average selling price of the properties sold
during the three month period in fiscal year 2007, as compared to the same
period in fiscal year 2006, resulted in a higher per property
average.
The
Company’s cost of goods sold, and the corresponding average per property sold,
for the three month periods ending March 31, 2007 and 2006 is detailed
below:
|
Three
Months Ended March 31,
|
||||||||||||
|
2007
|
2006
|
|||||||||||
|
Total
(000s)
|
Per
lot average
|
Total
(000s)
|
Per
lot average
|
|||||||||
|
Land
cost
|
$
|
370.8
|
$
|
956
|
$
|
737.3
|
$
|
652
|
||||
|
Processing
fees
|
51.7
|
133
|
73.4
|
65
|
||||||||
|
Merchant
fees
|
31.9
|
82
|
42.7
|
38
|
||||||||
|
Royalty
to related party
|
142.5
|
367
|
251.1
|
222
|
||||||||
|
Sales
commissions
|
40.1
|
103
|
61.9
|
55
|
||||||||
|
Dues
& taxes
|
-
|
-
|
24.5
|
22
|
||||||||
|
$
|
637.0
|
$
|
1,642
|
$
|
1,190.9
|
$
|
1,053
|
|||||
Gross
profit for the three months ended March 31, 2007 was $264,680, which represents
29.4% of net revenue. During the same period in fiscal year 2006, gross profit
totaled $466,359, which was 28.1% of net revenue. The decrease in gross profit
as measured in dollars was due to the decrease in the number of properties
sold
during the three month period in fiscal year 2007 as compared to the same
period
in fiscal year 2006. As measured as a percentage of net revenue, gross profit
increased during the current year period due to the significant increase
in the
average selling price of the properties sold. The average selling price
increased by approximately 59% while the average cost of the properties sold
increased by only 56%, resulting in a higher gross margin for the three month
period ended March 31, 2007 as compared to the same period in fiscal year
2006.
Operating
expenses totaled $349,703 during the three months ended March 31, 2007,
which
represents an increase of $60,367, or 20.8%, from the $289,336 that was
incurred
during the same period last year. Salaries and related expenses increased
by
$88,952 from the $59,940 incurred during the same three month period in
fiscal
year 2006. The increase in salaries and related expenses is due to increased
headcount, with the Company having six (6) full-time employees during the
2006
period and fifteen (15) during the 2007 period. Compensation paid to directors
and officers increased by $41,344 during the current period due to the
cash
compensation paid to the Company’s Chief Financial Officer, which totaled
$27,500, and the expensing of options granted to certain directors and
officers
of the Company, which totaled $13,844. Accounting/audit fees increased
by
$12,000 during the current period, as compared to the same period last
year, as
the Company began accruing the audit/quarterly review fees that it anticipates
incurring in relation to being a public entity. Insurance expenses increased
by
$13,946 during the three months ended March 31, 2007 as a result of the
Company
securing insurance policies normally associated with running a company
(directors & officers, general liability, workers’ comp, etc), none of which
were in place during the three month period in fiscal year 2006. These
increases, and the others listed in the table below, in operating expenses
incurred during the current period were partially offset by the $107,125
decrease in professional fees, the $7,925 decrease in legal fees, and the
$5,086
decrease in travel expenses that the Company experienced as compared to
the same
period in fiscal year 2006. The significant reduction in professional fees
is
almost entirely in relation to fees paid to consultants that were retained
by
the Company during the three month period in 2006 and who were not compensated
during the same period in fiscal year 2007.
The
following table details operating expenses for the three month periods ended
March 31, 2007 and 2006:
|
Three
Months Ended March 31,
|
||||||
|
2007
|
2006
|
|||||
|
Salaries
& related
|
$
|
148.9
|
$
|
59.9
|
||
|
Directors
& Officers compensation
|
41.3
|
-
|
||||
|
Legal
fees
|
63.8
|
71.7
|
||||
|
Accounting/audit
fees
|
15.0
|
3.0
|
||||
|
Investor
relations
|
9.3
|
7.6
|
||||
|
Professional
fees
|
4.3
|
111.4
|
||||
|
Office
rent
|
7.9
|
5.6
|
||||
|
Travel
|
15.5
|
20.5
|
||||
|
Insurance
|
14.0
|
-
|
||||
|
Depreciation
|
1.7
|
-
|
||||
|
Other
|
28.0
|
9.6
|
||||
|
$
|
349.7
|
$
|
289.3
|
|||
During
the three month period ended March 31, 2006, the Company incurred a one-time
cash charge of $140,000 in relation to its acquisition of Landbank, LLC
(see
note 2 of the accompanying notes to the financial statements). No such
extraordinary charge was incurred by the Company during the three month
period
ended March 31, 2007.
Interest
expense for the three months ended March 31, 2007 totaled $52,125, of which
$12,411 was interest incurred on the Company’s bank loan (see note 5 of the
accompanying notes to the financial statements) and the remaining $39,714
was
interest incurred on loans from related parties (see note 3 of the accompanying
notes to the financial statements). During the same period in fiscal year
2006,
interest expense was $33,379, with $14,830 relating to the bank loan and
the
remaining $18,549 relating to loans from related parties. The increase
in
interest expense during the current period in fiscal year 2007, as compared
to
the same period in fiscal year 2006, is due entirely to interest expense
relating to funds borrowed from related parties. As of March 31, 2007,
the
Company had related party borrowings (principal only) in the amount of
$1,984,213 as compared to $1,091,344 as of March 31, 2006. The increase
in the
amount owed resulted in higher interest expenses.
The
net
loss for the three months ended March 31, 2007 totaled $138,748, which
includes
a $1,600 state tax expense paid by the Company in March 2007. During the
same
period in fiscal year 2006, the Company recorded net income of $3,644.
The
difference in net income/loss, as compared on a year to year basis, is
attributable to the Company’s sales volume. The Company’s expenses relating to
its infrastructure increased at a faster rate than the rate of growth in
net
revenue. The Company’s current infrastructure can support net revenue
significantly higher than that experienced during the three month period
ended
March 31, 2007.
Assets
and Liabilities
The
Company had a cash balance of $439,251 as of March 31, 2007, an increase
of
$173,281 from the $265,970 on hand as of December 31, 2006. The increase
in cash
is primarily attributable to the increase in funds borrowed from related
parties, with the Company borrowing an additional $98,138 during the three
month
period ended March 31, 2007, and cash provided by the sale of inventory,
which
totaled $280,355. Cash provided by operating activities was $105,368, with
the
aforementioned $280,355 provided via inventory sales, $24,896 generated via
the
reduction in prepaid expenses, and $22,044 generated via other operating
activities being partially offset by the net operating loss of $138,748,
the
$39,297 used to pay down accounts payable, the $36,156 reduction in deferred
revenue, and the $7,726 used to reduce accrued expenses. The Company used
$20,789 to purchase capital equipment (computers and related hardware) during
the three month period ended March 31, 2007, while financing activities provided
net cash of $88,702, with $98,138 borrowed from related parties being offset
by
$9,436 relating to principal payments made on the bank loan.
The
following is a summary of the cash provided during the three month period
ended
March 31, 2007:
|
Cash
as of 12/31/06
|
$
|
265,970
|
||
|
Net
loss for three months ended 3/31/07
|
(138,748
|
)
|
||
|
Add
back depreciation - capital equipment
|
3,464
|
|||
|
Add
back amortization - options
|
13,844
|
|||
|
Less
cash used to pay down accounts
|
||||
|
payable
and accrued expenses
|
(47,023
|
)
|
||
|
Less
reduction in deferred revenue
|
(36,156
|
)
|
||
|
Less
principal payments on bank loan
|
(9,436
|
)
|
||
|
Less
capital equipment purchases
|
(20,789
|
)
|
||
|
Add
cash from inventory sold
|
280,355
|
|||
|
Add
cash borrowed from related parties
|
98,138
|
|||
|
Add
cash from reduction in prepaid expenses
|
24,896
|
|||
|
Add
cash from reduction in other receivables
|
4,736
|
|||
|
Cash
provided during three months ended 3/31/07
|
173,281
|
|||
|
Cash
as of 3/31/07
|
$
|
439,251
|
Inventory
was $2,956,908 as of March 31, 2007, a decrease of $280,355 from the $3,237,263
that was held as of December 31, 2006. The Company purchased $90,441 of new
properties during the three months ended March 31, 2007, with $23,950 of
the
purchases being properties located in Texas and the remaining $66,491 being
properties located in Pennsylvania. Land costs associated with the Company’s
revenue for the three month period ended March 31, 2007 were approximately
$370,796, which, net of the $90,441 in land purchases, equates to the
aforementioned $280,355 reduction in inventory. The following is a summary
of
the Company’s inventory holdings as of March 31, 2007:
|
Actively
marketed
|
Being
prepared for marketing
|
Total
|
|||||||
|
Arizona
|
26,973
|
-
|
26,973
|
||||||
|
Colorado
|
269,861
|
-
|
269,861
|
||||||
|
Florida
|
23,574
|
-
|
23,574
|
||||||
|
Michigan
|
17,347
|
-
|
17,347
|
||||||
|
Mexico
|
-
|
298,348
|
298,348
|
||||||
|
Nevada
|
-
|
859,072
|
859,072
|
||||||
|
New
Mexico
|
61,910
|
-
|
61,910
|
||||||
|
Oklahoma
|
17,499
|
-
|
17,499
|
||||||
|
Pennsylvania
|
252,338
|
66,353
|
318,691
|
||||||
|
Texas
|
1,062,133
|
1,500
|
1,063,632
|
||||||
|
1,731,635
|
1,225,273
|
2,956,908
|
|||||||
“Actively
Marketed” properties are properties that are ready for immediate resale, while
properties “Being Prepared for Marketing” are properties that are not currently
ready to be sold due to any number of reasons, such as, but not limited to,
zoning issues and title issues. In regard to the properties listed above
that
are categorized as “Being Prepared for Marketing”, the property in Mexico is
awaiting final deeding from the previous owner to the Company. The deeding
process in Mexico has proven to be a slow and tedious affair, and, based
on this
particular experience, the Company will carefully evaluate any future purchases
of property in Mexico. The Nevada property, which is also categorized as
“Being
Prepared for Marketing”, has been delayed from being actively marketed as the
Company awaits approval to subdivide the properties into smaller parcels.
This
property was originally purchased in fiscal year 2005 and is the only property
that the Company has not purchased for cash in full; this property is financed
by a bank loan (see note 5 of the accompanying notes to the financial
statements). The remaining properties that are categorized as “Being Prepared
for Marketing”, which are located in Pennsylvania and Texas, were purchased
during the period ended March 31, 2007 and late in fiscal year 2006 and are
in
the process of being deeded to the Company.
As
previously mentioned, the Company is aggressively pursuing strategies to
diversify its real estate holdings. The Company believes that a broad,
diversified inventory of properties may provide more buying options to our
customer base while also attracting new customers who may not have previously
purchased property from the Company because the Company did not offer the
type
of property that these individuals were interested in buying. Also, the Company
believes that a diversified inventory portfolio may allow it to significantly
increase both sales volume and net revenue while minimizing the potential
to
flood a particular market, or geographic region, with properties, and, in
the
process, depress property values and adversely impact the ability of our
customers to resell their property at a profit.
Prepaid
expenses totaled $189,279 as of March 31, 2007, a decrease of $24,896, or
11.6%,
from the $214,175 as of December 31, 2006. The decrease in prepaid assets
is due
entirely to the decrease in prepaid expenses related to the Company’s deferred
revenue. The Company follows FASB 66 - Accounting for Sales of Real Estate
(see
note 1 of the accompanying notes to the financial statements), and due to
the
Company’s 60-day refund policy, all sales transactions, and their related direct
expenses, are not recognized until after the expiration of the buyer’s 60-day
rescission period. Therefore, the Company records these direct expenses,
which
include royalties paid to an affiliate, sales commissions, merchant fees,
and
processing fees, as prepaid expenses until the 60-day buyer’s rescission period
has expired. Prepaid accounting/audit fees are to be expensed over the twelve
(12) month period beginning January 2007, while prepaid rent represents the
last
monthly rent payment on the Company’s office in Alameda, California. Prepaid
insurance relates to both the Company’s general liability and directors &
officers insurance policies and are expensed over the one-year term of the
policies. The following table details prepaid expenses as of March 31,
2007:
|
Prepaid
Expenses as of March 31, 2007
|
|||
|
|
(000s)
|
||
|
Accounting/audit
fees
|
$
|
22.5
|
|
|
Rent
- Alameda office
|
2.4
|
||
|
Travel
advance
|
0.5
|
||
|
Insurance
|
8.0
|
||
|
Processing
fees
|
42.9
|
||
|
Merchant
fees
|
18.3
|
||
|
Royalty
to related party
|
65.3
|
||
|
Sales
commissions
|
29.4
|
||
|
$
|
189.3
|
||
Property
and equipment totaled $17,235, net of accumulated depreciation, as of March
31,
2007
and
consisted of computers and related computer hardware. These assets were
purchased for use in the Company’s Alameda office and were put into service in
February 2007. These assets were recorded at their cost of $20,789, which
included the purchase price, tax, and freight. The Company is expensing these
assets over a twelve (12) month period beginning February 2007, with the
monthly
depreciation totaling $1,732. During the three month period ended March 31,
2007, the Company recorded depreciation expense of $3,464.
Current
liabilities totaled $3,987,308 as of March 31, 2007, an increase of $18,948
from
the $3,968,360 as of December 31, 2006. The following table details current
liabilities as of March 31, 2007:
|
Current
Liabilities as of March 31, 2007
|
|||
|
|
(000s)
|
||
|
Accounts
payable
|
$
|
94.9
|
|
|
Due
to related parties (principal & accrued interest)
|
2,768.0
|
||
|
Accrued
expenses
|
266.9
|
||
|
Accrued
payroll
|
55.8
|
||
|
Bank
loan - current portion
|
43.2
|
||
|
Deferred
revenue
|
758.5
|
||
|
$
|
3,987.3
|
||
Accounts
payable consist of normal expenses incurred during the course of business,
and
the Company’s payables are current with regard to vendor terms. As of March 31,
2007, accounts payable totaled $94,906, with approximately $64,000 owed
to the
Company’s outside attorneys, $15,000 owed to the Company’s independent auditors
(the $15,000 was paid in April 2007), and $6,800 owed to a consultant
hired by
the firm to assist the Company in identifying, and acquiring, suitable
properties for the Company to resell. Accrued expenses totaled $266,925
as of
March 31, 2007 and consisted of $155,000 owed to Piping Partners Holdings,
LLC
(see note 13 of the accompanying notes to the financial statements),
shares to
be issued in the amount of $84,000 in relation to services provided by
Aurelius
Consulting Group, Inc./RedChip Companies (see notes 10 and 13 of the
accompanying notes to the financial statements), $20,000 in accrued legal
fees,
$7,500 in accrued accounting fees, and $425 in accrued insurance expenses.
The
Company paid Piping Partners $80,000 in April 2007, reducing the amount
owed to
them to $75,000. On April 4, 2007, the Company issued 93,333 shares of
its
common stock to Aurelius Consulting Group as payment in full for the
$84,000 in
accrued fees. Accrued payroll and related expenses totaled $55,796 as
of March
31, 2007 and consisted of accrued vacation pay and two weeks of payroll
expense
that had been accrued but not paid as of March 31, 2007. The Company
owed
related parties $2,767,987 as of March 31, 2007, which consisted of $1,984,213
borrowed from affiliated companies (see note 3 of the accompanying notes
to the
financial statements), accrued interest of $215,313 related to the funds
borrowed from affiliated companies, accounting/professional fees totaling
$24,688 owed to Gaytan, Baumblatt, and Leevan, a firm owned by a Director
of the
Company, and royalties owed to an affiliated company in the amount of
$543,773
(see note 11 of the accompanying notes to the financial statements).
The $43,183
is the current portion of a bank loan for the Nevada properties (see
note 5 of
the accompanying financial statements), while the deferred revenue relates
to
sales that have occurred as of March 31, 2007, but whose revenue has
not been
recognized as of March 31, 2007 in compliance with FASB 66 - Accounting
for
Sales of Real Estate (see note 1 of the accompanying notes to the financial
statements).
As
of
March 31, 2007, the Company owed $503,445 to a third party who financed the
Company’s purchase of properties in Pershing County, Nevada, of which $43,183 is
classified as a current liability and $460,262 as a long-term liability.
The
properties were purchased in August 2005, and the amount owed as of December
31,
2006 was $512,881. The Company is required to make monthly payments of principal
and interest, with total principal payments of $9,436 and interest payments
of
$12,411 having been made by the Company during the three month period ended
March 31, 2007. As of March 31, 2007, the Company was current with payments
due
on this loan.
Liquidity
and Capital Resources
To
date,
the Company has funded inventory acquisitions primarily from net revenue
received from sales of properties in inventory and from funds borrowed
from
affiliates. The Company has not incurred any debt in order to finance its
operations, with the exception of amounts due to affiliates and mortgages
taken
out for nineteen (19) sections of land acquired in Pershing County, Nevada
in
2005 (see note 5 of the accompanying financial statements). These mortgages
bear
interest at 10% per annum and mature September 1, 2015. The Company anticipates
selling these properties by December 31, 2007 and repaying these mortgages
in
full.
While
the
Company believes that it can achieve its current objectives without raising
additional capital, additional capital would allow the Company to benefit
from
economies of scale in the real estate market and to shorten the lead-time
required to acquire new properties. Additional capital would also allow the
Company to acquire a more diversified portfolio of properties that the Company
believes would allow it to significantly increase both sales volume and net
revenue while minimizing the potential to flood a particular market, or
geographical region, with properties, and, in the process, depress property
values and adversely impact the ability of our customers to resell their
property at a profit. Toward that end, the Company has engaged consultants
to
advise it with respect to raising capital in the public and/or the private
marketplaces in the short and medium term. The Company believes, however,
that
based upon current plans, it will be able to fund its current operations
from
existing cash flows from operations for the remainder of fiscal year 2007
without raising any additional capital. To the extent that our cash flow
from
operations is insufficient to fund our future activities, we may need to
raise
additional funds through equity or debt financing. There can be no assurance
that such financings can be obtained on favorable terms, if at all.
Since
the
Company had both revenue and gross profit in fiscal years 2007, 2006, and
2005,
the Company plans to continue its current model, namely, an emphasis on
carefully selecting properties to acquire for resale while at the same time
broadening its customer/resale base. The Company has no plans to make any
significant changes in the number of its employees, although we do anticipate
possibly increasing the number of acquisition specialists as we expand into
new
states.
The
Company has no material commitments for capital expenditures as the Company
lets
marketplace conditions serve as its guide in terms of acquisition exposure.
There are no significant elements of income or loss arising from anything
other
than the Company’s continuing operations.
Critical
Accounting Estimates
The
Company's consolidated financial statements are prepared in conformity with
U.S.
generally accepted accounting principles, which require the use of estimates
and
assumptions regarding certain types of assets, liabilities, revenues, and
expenses. Management bases its estimates on historical experience and on
various
other assumptions that are believed to be reasonable under the circumstances.
The Company's estimates are based on the facts and circumstances available
at
the time; different reasonable estimates could have been used in the current
period, and changes in the accounting estimates used are likely to occur
from
period to period, which may have a material impact on the presentation of
the
Company's financial condition and results of operations. Actual results reported
by the Company may differ from such estimates. The Company reviews these
estimates periodically and reflects the effect of revisions in the period
that
they are determined. Note 1 of the Notes to our Consolidated Financial
Statements includes a summary of the accounting policies and methods used
in the
preparation of our consolidated accounts. Set forth below is a brief discussion
of what the Company believes to be the more critical judgment areas in the
application of the Company's accounting policies.
Impairment
of Inventory
The
Company's inventory consists of land parcels that are purchased for resale
purposes, and, except for special circumstances, do not normally remain in
inventory for a prolonged period of time. The Company records its inventory
at
the lower of cost or fair market value at the relevant balance sheet date.
The
Company reviews its inventory on a quarterly basis in an attempt to (1) identify
"problem" properties that may become impaired (difficult or impossible to
sell),
and (2) identify the financial impact, or impairment, to the recorded cost,
or
carrying value, of these properties. The Company attempts to measure impairment
on an item-by-item basis, but due to practical limitations, the Company also
measures impairment for a group of similar/related properties. The Company
considers properties to be similar/related if they are from the same subdivision
and/or geographic region. For the purpose of this discussion, the term
"property" refers to a specific property or a group of similar/related
properties.
The
Company recognizes inventory impairment at the time it's incurred, which
is at
the conclusion of the aforementioned quarterly reviews. Impairment charges,
or
write-downs to the recorded value of a property, occur when the estimated
fair
market value (FMV) of a property falls below the recorded, or carrying cost,
of
the associated property. The estimated FMV of a property is based on the
conditions that exist at the relevant balance sheet date, with consideration
being given to events after the relevant balance sheet date to the extent
that
they confirm conditions existing at or before the relevant balance sheet
date.
The Company's quarterly inventory impairment reviews require the exercise
of
judgment and take into consideration all relevant information available to
the
Company at the time the review is conducted. This periodic comparison of
comparable information determines if the value of our properties has become
impaired.
In
attempting to identify impaired properties, the Company begins by analyzing
recent trends in selling prices (EBay, Bid4Assets, real estate agent listings,
and the Company's sales records) to establish the estimated FMV of a property
and then compares the estimated FMV to the recorded value of the property
to
ensure that the estimated FMV has not fallen below the recorded value. Should
it
be determined that the estimated FMV is less than the recorded value, the
Company records the appropriate impairment charge at that time, as it writes
down the value of the property to it's estimated FMV, which does not include
any
profit/markup.
The
Company also reviews its properties to identify problems/issues that may
reduce
a property's value, such as, but not limited to, zoning issues, right of
way
issues, and failed perc tests. Any of these problems, and similar problems
not
previously mentioned, can have an adverse affect on the estimated FMV of
a
property and necessitate a write-down of the recorded value of said property.
Should it be determined that such "problem" properties exist, the Company
records the appropriate impairment charge at that time, as it writes down
the
value of the property to it's estimated FMV, which, as previously mentioned,
does not include any profit/markup.
The
Company's return rates (the number of similar properties sold by the Company
that have been returned to the Company by the buyer) are also reviewed in
an
effort to gauge the favorability, or salability, of its properties. The purpose
of this review is to attempt to determine if certain properties are (1) not
in
favor with our Customer base, (2) overpriced, (3) saturated for that particular
market, or (4) problem properties for some reason unknown to the Company.
Should
it be determined that certain properties are experiencing abnormally high
return
rates and may be difficult to sell at an estimated FMV above their recorded
cost, the Company will record the appropriate impairment charge at that time,
as
it writes down the value of the property to its estimated FMV.
The
Company's impairment analysis is predicated on establishing an accurate estimate
of a property's FMV. This estimate of FMV is based on the analysis of known
trends, demands, commitments, events and uncertainties. As previously stated,
the Company reviews all relevant information at its disposal at the time
its
impairment analysis is being performed, and uses that data to assess what
impairment charges, if any, have been incurred. However, estimated FMV can
be
difficult to establish and is contingent on market conditions, such as, but
not
limited to, supply and demand, local and national economic factors, and interest
rates. Any change in these market conditions, and similar conditions not
previously mentioned, could have a material impact on estimated FMV, and,
therefore, future inventory impairment charges incurred by the Company. Since
there is not always a readily available source for land values, the weight
of
all measures, as described above, are considered by management in its impairment
analysis.
Risk
Factors that May Affect Future Results and Market Price of
Stock
The
Company's operations and its securities are subject to a number of substantial
risks, including those described below. If any of these or other yet unforeseen
risks actually occur, the Company's business, financial condition, and operating
results, as well as the trading price or value of its securities could be
materially adversely affected. No attempt has been made to rank these risks
in
the order of their likelihood or potential harm. In addition to those general
risks enumerated elsewhere, any purchaser of the Company's common stock should
also consider the following risk factors:
Risks
Related to the Company's Operations:
We
have a limited operating history and cannot guarantee
profitability.
The
Company acquired its current operations in January of 2006 through the purchase
of Landbank LLC. Landbank, LLC itself commenced operations during the second
quarter of 2005. At this stage, the Company has only a limited operating
history
upon which an evaluation of performance and future prospects can be made.
There
can be no assurance that the Company will be able to continue to generate
revenues in the future.
The
Company is subject to all of the business risks associated with a new
enterprise, including, but not limited to, the risk of unforeseen capital
requirements, lack of fully-developed products, failure of market acceptance,
failure to establish time proven business relationships, and a competitive
disadvantage vis-a-vis larger and more established companies.
We
may need to raise capital in the future, and if such capital is not available
on
acceptable terms, we may have to curtail or cease
operations.
The
Company's business is dependent in part on being able to acquire and make
available a broad selection of properties. Acquisition of these properties
requires significant capital expenditure. While the Company intends to generate
sufficient revenues in the future to fund our acquisitions, it is possible
that
we may need to raise additional capital. Consequently, we may be unable to
raise
sufficient additional capital on terms deemed acceptable. In that event,
the
Company may have to curtail or cease operations and/or limit the number of
properties maintained in inventory. This could have an adverse impact on
the
Company's ability to effectively compete with other companies, which are
able to
offer customers a broader range of properties. If additional funds are raised
through the issuance of debt securities or preferred stock, these securities
could have rights that are senior to the holders of the common stock, and
any
debt securities could contain covenants that would restrict the Company's
operations. In addition, if the Company raises funds by selling common stock
or
convertible securities, existing stockholders could face dilution of their
shares.
We
may be unable to identify or acquire suitable properties at a low cost, which
could affect our ability to generate revenues.
The
Company's ability to generate revenues is highly dependent on its ability
to
maintain low acquisition costs while offering a wide range of suitable
properties. There can be no assurance that the Company's acquisition teams
will
be successful
in locating suitable properties on financially attractive terms.
Competition
for properties may increase costs and reduce returns.
The
Company competes to acquire real property with individuals and other entities
engaged in similar activities. Many of our competitors have greater financial
resources, and thus, a greater ability to borrow funds and to acquire
properties. Competition for properties may reduce the number of suitable
acquisition opportunities available and may have the effect of increasing
acquisition costs thereby adversely impacting Company profits.
We
acquire a substantial number of our properties through the tax-lien foreclosure
process, and may therefore be subject to additional costs for eviction and/or
clearing title.
When
acquiring properties through the tax-lien foreclosure process, the property
is
deeded to the buyer by the relevant government entity without any warranties
as
to title, and in some instances, subject to a right of the original owner
to
redeem the property within a certain number of days. In addition, the buyer
of
the property remains responsible for any eviction of a prior owner who remains
in possession of the property. The majority of parcels that we acquire are
unimproved lots with no owner in possession, and we attempt to perform adequate
due diligence in connection with the purchase of each piece of property to
ensure that there are no material liens or encumbrances affecting title to
the
property. We cannot however guarantee that we will not be required to undertake
eviction or other proceedings in connection with properties purchased in
this
process, or that we will not encounter undisclosed encumbrances. In the event
such a situation arises, we may incur significant additional acquisition
costs
which may adversely affect our net revenues and/or results of operations.
In
counties where there is a right of redemption, we hold the property in inventory
until the right has lapsed. The Company does not currently acquire significant
amounts of properties in counties where such rights exist, however, if we
do,
any exercise of these rights could delay our ability to generate revenues
from
these properties.
We
may be unable to sell a property, if or when we decide to do so, which could
delay revenues needed to fund operations.
The
real
estate market is affected by many factors, such as general economic conditions,
availability of financing, interest rates, and other factors, including supply
and demand, that are beyond the Company's control. The Company cannot predict
whether it will be able to sell any property for the price or on the terms
that
it sets or whether any price or other terms offered by a prospective purchaser
would be acceptable. The Company cannot predict the length of time needed
to
find a willing purchaser and to close the sale of a property.
The
Company may be required to expend funds to correct defects or to make
improvements before a property can be sold. The Company cannot make any
assurance that it will have funds available to correct such defects or to
make
such improvements.
Our
principal stockholders have broad control over our
operations.
The
Company's principal stockholders beneficially own approximately 83% of the
issued and outstanding share capital of the Company. As a result, these
stockholders are able to exercise significant influence over the Company,
including the election of directors, amendments to the articles of incorporation
or by-laws of the Company, the approval of mergers or other business
combinations, and the sale or purchase of material assets. The interests
of
these stockholders in deciding these matters and the factors they consider
in
making such decisions could be different from the interests of the Company's
other stockholders.
We
may lose key personnel and/or be unable to maintain current relationships
with
affiliates upon which we depend.
The
Company's success depends to a significant degree upon the continued
relationship with certain of its affiliates and the contribution of its
executive management team. If any of the Company's executives decide to leave
the Company, we could lose access to important affiliate services and/or
acquisition or sales channels, which could adversely affect our operations
and/or financial condition.
We
are subject to general real estate risks.
The
Company is subject to risks generally associated with the ownership of real
estate, including:
| · |
changes
in general or local economic
conditions;
|
| · |
changes
in supply of or demand for similar or competing properties in the
area;
|
| · |
bankruptcies,
financial difficulties or lease defaults by
customers;
|
| · |
changes
in interest rates and availability of permanent mortgage financing
that
may render the sale of a property difficult or unattractive or
otherwise
reduce the returns to stockholders;
|
| · |
changes
in governmental rules, regulations, and fiscal policies, including
changes
in tax, real estate, environmental, and zoning
laws;
|
| · |
periods
of high interest rates and tight money
supply.
|
The
Company's operations can be negatively affected by the occurrence of any
of
these or other factors beyond the Company's control.
We
may be subject to litigation, which could divert substantial time and money
from
our business.
The
Company may be subject to claims from customers or other third parties. If
such
parties are successful, they may be able to obtain injunctive or other equitable
relief, which could effectively diminish the Company's ability to further
acquire, subdivide, and sell properties, and could result in the award of
substantial damages. Management may be required to devote substantial time
and
energy in defending any such claims.
Risks
Related to the Ownership of the Company's Stock:
There
is a limited market for the buying/selling of the Company's common stock.
If a
substantial and sustained market for the Company's common stock does not
develop, the Company's stockholders may have difficulty selling, or be unable
to
sell, their shares.
The
Company's common stock is presently traded in the "Other" Over-the-Counter
or
"Gray Market" market on an unsolicited quote basis wherein trades are reported
by broker-dealers to their Self-Regulatory Organization ("SRO") which
distributes the trade data to market data vendors and financial websites.
Since
bids and offers are not collected in a central location, market transparency
and
best execution are more elusive. There is only a limited market for the
Company's common stock and there can be no assurance that this market will
be
maintained or broadened. If a substantial and sustained market for the Company's
common stock does not develop, the Company's stockholders may have difficulty
selling, or be unable to sell, their shares.
The
Company has recently become a reporting company in order to meet the current
requirements for quotation on the OTC Bulletin Board. The Company's stock
can be
quoted on the OTC Bulletin Board if, and only if, a broker-dealer files a
Form
15c-211 with the NASD to permit the Company's common stock to be quoted on
the
OTC Bulletin Board and the broker is granted the right to quote the Company's
stock.
Accordingly,
we cannot provide any assurance that we will achieve quotation of our stock
on
the OTC Bulletin Board.
Substantial
sales of the Company's common stock could cause the stock price to
fall.
As
of May
11, 2007, the Company had 9,928,664 shares of common stock outstanding of
which
approximately 8,922,780 shares are considered "restricted securities" as
that
term is defined under Rule 144 promulgated under the Securities Act of 1933
("'33 Act"). These restricted shares are eligible for sale under Rule 144
at
various times. No prediction can be made as to the affect, if any, that the
sales of shares of common stock or the availability of such shares for sale
will
have on the market prices prevailing from time to time. Nevertheless, the
possibility that substantial amounts of the Company's common stock may be
sold
in the public market may adversely affect prevailing market prices for the
common stock and could impair the Company's ability to raise capital through
the
sale of its equity securities.
The
Company has a significant number of shares authorized but unissued. These
shares
may be issued without stockholder approval. Significant issuances of stock
would
dilute the percentage ownership of the Company's current stockholders and
could
likely have an adverse impact on the market price of the common
stock.
As
of May
11, 2007, the Company had an aggregate of 90,071,336 shares of common stock
authorized, but unissued. The Company has reserved 3,000,000 shares for
issuance under the Company's 2006 Stock Incentive Plan, and an additional
10%
has been reserved for issuances to consultants. All remaining shares of common
stock may be issued without any action or approval by the Company's
stockholders. Any such shares issued would further dilute the percentage
ownership of the Company's current stockholders and would likely have an
adverse
impact on the market price of the common stock.
The
Company does not intend to pay dividends in the near
future.
The
Company's board of directors determines whether to pay dividends on the
Company's issued and outstanding shares. The declaration of dividends will
depend upon the Company's future earnings, its capital requirements, its
financial condition, and other relevant factors. The Company's Board of
Directors does not intend to declare any dividends on the Company's shares
for
the foreseeable future. The Company anticipates that it will retain any earnings
to finance the growth of its business and for general corporate
purposes.
Our
securities are currently classified as a "Penny Stock" which may limit our
stockholders' ability to sell their securities.
The
price
of our common stock is currently below $5.00 per share, and is therefore
considered "penny stock" under Rule 3a51-1 of the '34 Act. As such, additional
sales practice requirements are imposed on broker-dealers who sell to persons
other than established customers and "accredited investors" as defined in
Rule
501 of Regulation D as promulgated under the '33 Act. The prerequisites required
by broker-dealers engaged in transactions involving "penny stocks" have
discouraged, or even barred, many brokerage firms from soliciting orders
for
certain low priced stocks.
With
respect to the trading of penny stocks, broker-dealers have an obligation
to
satisfy certain special sales practice requirements pursuant to Rule 15g-9
of
the '34 Act, including a requirement that they make an individualized written
suitability determination for the purchase and receive the purchaser's written
consent prior to the transaction.
Broker-dealers
have additional disclosure requirements as set forth in the Securities
Enforcement Act Remedies and Penny Stock Reform Act of 1990. These disclosure
requirements include the requirement for a broker-dealer, prior to a transaction
in a penny stock, to deliver a standardized risk disclosure document that
provides information about penny stocks and the risks of the penny stock
market.
Additionally,
broker-dealers must provide customers with current bid and offer quotations
for
penny stocks, the compensation payable to the broker-dealer and its salesperson
in the transaction, and the monthly account statements showing the market
value
of each penny stock held in a customer's account.
Accordingly,
the market liquidity of the Company's common stock and the ability of any
present and prospective stockholder-investors to sell their securities in
the
secondary market is limited due to the above penny stock regulations and
the
associated broker-dealer requirements.
Our
Chief
Executive Officer and Chief Financial Officer (our principal executive officer
and principal financial officer, respectively) conducted an evaluation of
the
effectiveness of the design and operation of our disclosure controls and
procedures as of the end of the period covered by this quarterly report on
Form
10-QSB. Based on this evaluation, our Chief Executive Officer and our Chief
Financial Officer have concluded that, as of the end of the period covered
by
this quarterly report on Form 10-QSB, our disclosure controls and procedures
were effective to ensure that information we are required to disclose in
reports
that we file or submit under the Securities Exchange Act of 1934 is recorded,
processed, summarized and reported within the time periods specified in
Securities and Exchange Commission rules and forms. In addition, there was
no
change in our internal control over financial reporting that occurred during
the
period covered by this quarterly report on Form 10-QSB that has materially
affected, or is reasonably likely to materially affect, our internal control
over financial reporting.
PART
II. OTHER INFORMATION
From
time
to time, we may be involved in various claims, lawsuits or disputes with
third
parties, actions involving allegations of discrimination, or breach of contract
actions incidental to the operation of our business. However, we are not
currently involved in any litigation which we believe could have a materially
adverse affect on our financial condition or results of operations.
Except
as
set forth below, there were no unregistered, or any other, sales of equity
securities by the Company during the three month period ended March 31, 2007.
On
March
13, 2007, the Company granted to its Chief Financial Officer an option to
purchase 100,000 shares of its common stock (see note 14 of the accompanying
notes to the financial statements). The exercise price of the option was
the
fair market value of the Company’s common stock on the date of grant. This grant
was made pursuant to the securities exemption available under Section 4(2)
of
the 1933 Act.
The
Company's board of directors determines whether to pay dividends on the
Company's issued and outstanding shares. The declaration of dividends will
depend upon the Company's future earnings, its capital requirements, its
financial condition, and other relevant factors. The Company's Board of
Directors does not intend to declare any dividends on the Company's shares
for
the foreseeable future. The Company anticipates that it will retain any earnings
to finance the growth of its business and for general corporate
purposes.
None.
None.
Exhibits
|
No.
|
Description
|
|
|
|
|
|
|
31.1
|
Certification
of Principal Executive Officers Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
|
|
|
|
|
|
|
31.2
|
Certification
of Principal Financial Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
|
|
|
|
|
|
|
32.1
|
Certification
of Principal Executive Officers Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
|
|
|
|
|
|
|
32.2
|
Certification
of Principal Financial Officers Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
|
In
accordance with the requirements of the Exchange Act, the registrant caused
this
report to be signed on its behalf by the undersigned, there unto duly
authorized.
|
|
|
|
|
|
||
|
|
|
|
|
Date: May
15, 2007
|
By:
|
/s/
Doug
Gravink
|
|
|
Doug
Gravink
Chief
Executive Officer
|
|
|
|
|
|
|
Date: May
15, 2007
|
By:
|
/s/
Gary
Hewitt
|
|
|
Gary
Hewitt
President
|
|
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
DC 20549
FORM
10-QSB
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES
EXCHANGE ACT OF 1934
For
the period ended June 30, 2007
Commission
file number: 333-83231
LANDBANK
GROUP, INC
(Exact
Name of Registrant as specified in its charter)
|
Delaware
|
20-1915083
|
|
(State
of incorporation)
|
(IRS
Employer Identification No.)
|
|
7030
Hayvenhurst Avenue, Van Nuys, CA
|
91406
|
|
(Address
of principal executive offices)
|
(Zip
Code)
|
(818)
464-1614
(Registrant's
telephone number, including area code)
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
o
Indicate
by check mark whether the registrant is a shell company (as defined in
Rule
12b-2 of the Exchange Act). Yes o No
x
State
the
number of shares outstanding of each of the issuer's classes of common
equity:
9,928,664 shares of Common Stock ($.0001 par value) as of August 13,
2007.
Transitional
Small Business Disclosure Format (Check one): Yes o No x
|
|
|
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|
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|
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PART
I Financial Information
|
|
|
|
|
|
|
|
Item
1
|
3
|
|
|
|
3
|
|
|
|
4
|
|
|
|
5
|
|
|
|
6
|
|
|
|
|
|
|
Item
2
|
17
|
|
|
|
|
|
|
Item
3
|
30
|
|
|
|
|
|
|
PART
II Other Information
|
|
|
|
|
|
|
|
Item
1
|
31
|
|
|
|
|
|
|
Item
2
|
31
|
|
|
|
|
|
|
Item
3
|
32
|
|
|
|
|
|
|
Item
4
|
32
|
|
|
|
|
|
|
Item
5
|
32
|
|
|
|
|
|
|
Item
6
|
32
|
|
|
|
||
PART
I FINANCIAL INFORMATION
|
LandBank
Group, Inc. and
Subsidiary
|
||||||||
|
Unaudited
Consolidated Balance Sheet
|
||||||||
|
As
of June 30, 2007
|
||||||||
|
ASSETS
|
||||||||
|
Current
assets
|
||||||||
|
Cash
& cash equivalents
|
$ |
2,851
|
||||||
|
Inventory
- land parcels
|
2,842,383
|
|||||||
|
Prepaid
expenses
|
25,382
|
|||||||
|
Total
current assets
|
2,920,616
|
|||||||
|
Computers,
net
|
12,129
|
|||||||
|
Total
assets
|
$ |
2,882,745
|
||||||
|
LIABILITIES
AND SHAREHOLDERS' DEFICIT
|
||||||||
|
Current
liabilities
|
||||||||
|
Accounts
payable
|
$ |
122,250
|
||||||
|
Due
to related parties
|
2,947,594
|
|||||||
|
Accrued
expenses
|
155,118
|
|||||||
|
Loan
payable - current portion
|
41,196
|
|||||||
|
Deferred
income
|
168,035
|
|||||||
|
Total
current liabilities
|
3,434,193
|
|||||||
|
Loan
payable - non-current portion
|
452,575
|
|||||||
|
Shareholders'
deficit
|
||||||||
|
Common
stock, 100,000,000 shares authorized; $0.0001
|
||||||||
|
par
value; 9,928,664 issued and outstanding
|
993
|
|||||||
|
Additional
paid in capital
|
509,296
|
|||||||
|
Accumulated
deficit
|
(1,514,312)
|
|||||||
|
Total
shareholders' deficit
|
(1,004,023)
|
|||||||
|
Total
liabilities and shareholders' deficit
|
$ |
2,882,745
|
||||||
The
accompanying notes are an integral part of these consolidated audited
financial
statements.
|
Landbank
Group
Inc. and Subsidiary
|
||||||||||||||||
|
Consolidated
Statements of Operations
|
||||||||||||||||
|
For
the Three and Six Month Periods Ended June 30, 2007 and
2006
|
||||||||||||||||
|
Three
Months ended June 30,
|
Six
Months ended June 30,
|
|||||||||||||||
|
2007
|
2006
|
2007
|
2006
|
|||||||||||||
|
Revenue,
net
|
$ |
650,590
|
$ |
569,742
|
$ |
1,552,297
|
$ |
2,227,083
|
||||||||
|
Cost
of revenue
|
||||||||||||||||
|
Direct
selling expenses
|
477,200
|
390,187
|
971,707
|
1,330,052
|
||||||||||||
|
Royalty
to related party
|
35,055
|
54,817
|
177,575
|
305,934
|
||||||||||||
|
Total
cost of sales
|
512,255
|
445,004
|
1,149,282
|
1,635,986
|
||||||||||||
|
Gross
profit
|
138,335
|
124,738
|
403,015
|
591,097
|
||||||||||||
|
Operating
expenses:
|
||||||||||||||||
|
Rent,
related party
|
5,556
|
5,556
|
11,112
|
11,109
|
||||||||||||
|
Professional
fees, related parties
|
-
|
48,584
|
5,383
|
79,284
|
||||||||||||
|
Professional
fees
|
39,205
|
518,124
|
67,964
|
609,434
|
||||||||||||
|
Legal
fees
|
25,408
|
37,558
|
89,185
|
109,261
|
||||||||||||
|
Directors
and officers compensation
|
39,344
|
-
|
80,688
|
-
|
||||||||||||
|
Settlement
on Nevada property, nonrecurring
|
50,000
|
-
|
50,000
|
-
|
||||||||||||
|
General
& administrative expenses
|
185,594
|
158,728
|
390,478
|
248,798
|
||||||||||||
|
Total
operating expenses
|
345,107
|
768,550
|
694,810
|
1,057,886
|
||||||||||||
|
Loss
from operations
|
(206,772 | ) | (643,812 | ) | (291,795 | ) | (466,789 | ) | ||||||||
|
Other
expenses:
|
||||||||||||||||
|
Merger
related expenses
|
-
|
-
|
-
|
(140,000 | ) | |||||||||||
|
Interest
expense - bank
|
(12,508 | ) | (13,123 | ) | (24,919 | ) | (27,953 | ) | ||||||||
|
Interest
expense - related parties
|
(39,587 | ) | (30,439 | ) | (79,301 | ) | (48,988 | ) | ||||||||
|
Total
other expenses
|
(52,095 | ) | (43,562 | ) | (104,220 | ) | (216,941 | ) | ||||||||
|
Loss
before income taxes
|
(258,867 | ) | (687,374 | ) | (396,015 | ) | (683,730 | ) | ||||||||
|
Provision
for income taxes
|
-
|
-
|
1,600
|
-
|
||||||||||||
|
Net
loss
|
$ | (258,867 | ) | $ | (687,374 | ) | $ | (397,615 | ) | $ | (683,730 | ) | ||||
|
Basic
and diluted weighted average number
|
||||||||||||||||
|
of
common stock outstanding
|
9,924,561
|
9,630,538
|
9,880,193
|
9,417,700
|
||||||||||||
|
Basic
and diluted net loss per share
|
$ | (0.03 | ) | $ | (0.07 | ) | $ | (0.04 | ) | $ | (0.07 | ) | ||||
The
accompanying notes are an integral part of these consolidated audited
financial
statements.
|
LandBank
Group, Inc. and Subsidiary
|
||||||||
|
Unaudited
Consolidated Statements of Cash Flows
|
||||||||
|
For
the Six Month Periods Ended June 30, 2007 and
2006
|
||||||||
|
|
||||||||
|
2007
|
2006
|
|||||||
|
Cash
flows from operating activities:
|
|
|
||||||
|
Net
loss
|
$ | (397,615 | ) | $ | (683,730 | ) | ||
|
Adjustments
to reconcile net loss to net cash
|
||||||||
|
used
in operating activities:
|
||||||||
|
Depreciation
- capital equipment
|
8,660
|
-
|
||||||
|
Amortization
of options granted to Directors & Officers
|
25,688
|
-
|
||||||
|
Shares
issued for service
|
-
|
374,667
|
||||||
|
Changes
in current assets and liabilities:
|
||||||||
|
(Increase)
decrease in current assets
|
||||||||
|
Inventory
- land parcels
|
394,880
|
(845,558 | ) | |||||
|
Advance
- land purchases
|
-
|
(97,448 | ) | |||||
|
Other
receivable
|
8,542
|
-
|
||||||
|
Prepaid
expenses
|
188,793
|
77,769
|
||||||
|
Increase
(decrease) in current liabilities
|
||||||||
|
Accounts
payable
|
(40,925 | ) |
13,418
|
|||||
|
Accrued
expenses
|
(91,330 | ) |
31,348
|
|||||
|
Reserve
for returns
|
-
|
53,975
|
||||||
|
Deferred
income
|
(626,632 | ) | (511,993 | ) | ||||
|
Total
adjustments
|
(182,324 | ) | (903,822 | ) | ||||
|
Net
cash used in operating activities
|
(529,939 | ) | (1,587,552 | ) | ||||
|
Cash
flows from investing activities:
|
||||||||
|
Capital
equipment purchases
|
(20,789 | ) |
-
|
|||||
|
Cash
flows from financial activities:
|
||||||||
|
Due
to related parties
|
306,719
|
1,115,966
|
||||||
|
Repayment
of loans
|
(19,110 | ) | (41,557 | ) | ||||
|
Net
cash provided by financial activities
|
287,609
|
1,074,409
|
||||||
|
Net
change in cash and cash equivalents
|
(263,119 | ) | (513,143 | ) | ||||
|
Cash
and cash equivalents - beginning balance
|
265,970
|
631,425
|
||||||
|
Cash
and cash equivalents - ending balance
|
$ |
2,851
|
$ |
118,282
|
||||
|
Supplemental
disclosure of cash flows information:
|
||||||||
|
Taxes
paid
|
$ |
1,600
|
$ |
-
|
||||
|
Interest
paid
|
$ |
24,919
|
$ |
27,953
|
||||
The
accompanying notes are an integral part of these consolidated audited
financial
statements.
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1.
Nature of business and significant accounting policies:
Nature
of business:
Landbank
Group, Inc., formerly known as iStorage Network, Inc. (“iStorage”), formerly
known as Camryn Information Services, Inc, was incorporated under the
laws of
the State of Delaware on May 13, 1997.
On
January 26, 2006, iStorage issued 8,200,000 shares of restricted stock
(post-split) in exchange for all of the assets and liabilities of Landbank,
LLC,
a company organized in the State of California in December 2004, and
$140,000 in
cash. iStorage changed its name to Landbank Group, Inc. The former
members of
Landbank, LLC became approximately 90% owners of the Company.
The
exchange of shares with Landbank, LLC was accounted for as a reverse
acquisition
under the purchase method of accounting since the stockholders of Landbank,
LLC
obtained control of the consolidated entity (collectively, “the Company”).
Accordingly, the merger of the two companies was recorded as a recapitalization
of Landbank, LLC, where as Landbank, LLC was treated as the continuing
entity.
The historical results for the six month periods ended June 30, 2007
and 2006
include Landbank, LLC and Landbank Group, Inc. (from the acquisition
date).
The
Company makes bulk acquisitions of parcels of land, and resells the
land as
individual parcels. The Company seeks to acquire a majority of its
land
“in-bulk” through the real property tax lien foreclosure process, either at
local government tax sales, directly from local government entities
having
acquired property at tax sales, or directly from owners of tax-defaulted
parcels
prior to tax sale.
The
types
of real estate acquired and sold by the Company include undeveloped
acreage,
houses, and lots. These parcels are marketed nationwide. To date, the
Company
has acquired properties in Arizona, Colorado, Florida, Michigan, New
Mexico,
Nevada, Oklahoma, New York, Pennsylvania, Texas, and in the State of
Chihuahua,
Mexico.
The
Company resells the land as individual parcels through multiple distribution
channels, including Internet sales and leads developed by the Company,
its
affiliates, or third party vendors. The Company also uses the Internet
to market
its properties.
The
Company shares its office space with its affiliates.
The
Company’s principal office is located in Van Nuys, California. The property
is
leased from a real estate company related to the Company by common
ownership
under a five-year lease that expires in 2008.
The
Company also has a satellite office in American Fork, Utah and a processing,
acquisition, and sales office in Alameda, California. The Company closed
its
sales office in Phoenix, Arizona during the three-month period ended
June 30,
2007. The Company is current on the monthly lease payments for its
Arizona
office, with the lease set to terminate on January 31, 2008. The Company
shares
office space at the Van Nuys, American Fork, and Alameda locations
with its
affiliates.
Summary
of significant accounting policies
The
following summary of significant accounting policies used in the preparation
of
these consolidated financial statements is in accordance with generally
accepted
accounting principles.
Principles
of Consolidation
The
consolidated financial statements consist of the accounts of Landbank
Group,
Inc. (“Parent”) and its wholly owned subsidiary Landbank, LLC, a California
Limited Liability Company (collectively “The Company”). All material
inter-company transactions have been eliminated in consolidation.
Cash
and cash equivalents
For
purposes of the statement of cash flows, cash equivalents include all
highly
liquid debt instruments with original maturities of ninety days or
less which
are not securing any corporate obligations.
Concentration
The
Company maintains its cash in bank deposit accounts, which, at times,
may exceed
federally insured limits. The Company has not experienced any losses
in such
accounts.
Inventory
The
Company’s inventory consists of land parcels that are purchased for resale
purposes, and, except for special circumstances, do not normally remain
in
inventory for a prolonged period of time. The Company records its inventory
at
the lower of cost or fair market value at the relevant balance sheet
date. The
Company reviews its inventory on a quarterly basis in an attempt to
(1) identify
“problem” properties that may become impaired (difficult or impossible to sell),
and (2) identify the financial impact, or impairment, to the recorded
cost, or
carrying value, of these properties. The Company attempts to measure
impairment
on an item-by-item basis, but due to practical limitations, the Company
also
measures impairment for a group of similar/related properties. The
Company
considers properties to be similar/related if they are from the same
subdivision
and/or geographic region. For the purpose of this discussion, the term
“property” refers to a specific property or a group of similar/related
properties.
The
Company recognizes inventory impairment at the time it’s incurred, which is at
the conclusion of the aforementioned quarterly reviews. Impairment
charges, or
write-downs to the recorded value of a property, occur when the estimated
fair
market value (FMV) of a property falls below the recorded, or carrying
cost, of
the associated property. The estimated FMV of a property is based on
the
conditions that exist at the relevant balance sheet date, with consideration
being given to events after the relevant balance sheet date to the
extent that
they confirm conditions existing at or before the relevant balance
sheet date.
The Company’s quarterly inventory impairment reviews require the exercise of
judgment and take into consideration all relevant information available
to the
Company at the time the review is conducted. This periodic comparison
of
comparable information determines if the value of our properties has
become
impaired.
In
attempting to identify impaired properties, the Company begins by analyzing
recent trends in selling prices (EBay, Bid4Assets, real estate agent
listings,
and the Company’s sales records) to establish the estimated fair market value
(FMV) of a property and then compares the estimated FMV to the recorded
value of
the property to ensure that the estimated FMV has not fallen below
the recorded
value. Should it be determined that the estimated FMV is less than
the recorded
value, the Company records the appropriate impairment charge at that
time, as it
writes down the value of the property to it’s estimated FMV, which does not
include any profit/markup.
The
Company also reviews its properties to identify problems/issues that
may reduce
a property’s value, such as, but not limited to, zoning issues, right of way
issues, and failed perc tests. Any of these problems, and similar problems
not
previously mentioned, can have an adverse affect on the estimated FMV
of a
property and necessitate a write down of the recorded value of said
property.
Should it be determined that such “problem” properties exist, the Company
records the appropriate impairment charge at that time, as it writes
down the
value of the property to it’s estimated FMV, which, as previously mentioned,
does not include any profit/markup.
The
Company’s return rates (the number of similar properties sold by the Company
that have been returned to the Company by the buyer) are also reviewed
in an
effort to gauge the favorability, or salability, of its properties.
The purpose
of this review is to attempt to determine if certain properties (1)
are not in
favor with our Customer base, (2) are over priced, (3) the particular
market for
that property is saturated, or (4) are problem properties for some
reason
unknown to the Company. Should it be determined that certain properties
are
experiencing abnormally high return rates and may be difficult to sell
at an
estimated FMV above their recorded cost, the Company will record the
appropriate
impairment charge at that time, as it writes down the value of the
property to
it’s estimated FMV.
The
Company’s impairment analysis is predicated on establishing an accurate estimate
of a property’s FMV. This estimate of FMV is based on the analysis of known
trends, demands, commitments, events and uncertainties. As previously
stated,
the Company reviews all relevant information at its disposal at the
time its
impairment analysis is being performed, and uses that data to assess
what
impairment charges, if any, have been incurred. However, estimated
FMV can be
difficult to establish and is contingent on market conditions, such
as, but not
limited to, supply and demand, local and national economic factors,
and interest
rates. Any change in these market conditions, and similar conditions
not
previously mentioned, could have a material impact on estimated FMV,
and,
therefore, future inventory impairment charges incurred by the Company.
Since
there is not always a readily available source for land values, the
weight of
all measures, as described above, are considered by management in it’s
impairment analysis.
Income
taxes
Income
taxes are accounted for in accordance with FASB-109 - Accounting for
Income
Taxes. Deferred taxes represent the expected future tax consequences when
the
reported amounts of assets and liabilities are recovered or paid. They
arise
from differences between the financial reporting and tax bases of assets
and
liabilities and are adjusted for changes in tax laws and tax rates
when those
changes are enacted. The provision for income taxes represents the
total of
income taxes paid, or payable, for the current year, plus the change
in deferred
taxes during the year.
Use
of estimates
The
process of preparing consolidated financial statements in conformity
with
generally accepted accounting principles requires the use of estimates
and
assumptions regarding certain types of assets, liabilities, revenues,
and
expenses. Such estimates primarily relate to unsettled transactions
and events
as of the date of the financial statements. Accordingly, upon settlement,
actual
results may differ from estimated amounts.
Recognition
of revenue and expenses
The
Company follows FASB 66 - Accounting for Sales of Real Estate. Substantially
all
of the Company’s land sales are all-cash transactions. The Company also had a
small, insignificant number of financing transactions through June
30, 2007.
Because the Company’s policy for the all-cash transactions is to allow the buyer
60 days to rescind his real estate purchase, and because the Company
does not
issue the deed of trust on a financing sale until the note is paid
in full, the
deposit method of accounting is used. Under the deposit method, revenues
and
their related expenses, including inventory, are not recognized until
the end of
the buyer’s 60-day rescission period, for the all-cash sales, and at the time
the note is paid in full for the financing transaction (also see note
4).
Issuance
of shares for service
The
Company accounts for the issuance of equity instruments to acquire
goods and
services based on the fair value of the goods and services or the fair
value of
the equity instrument at the time of issuance, whichever is more reliably
measurable.
Segment
reporting
Statement
of Financial Accounting Standards No. 131 ("SFAS 131"), "Disclosure
about
Segments of an Enterprise and Related Information" requires use of
the
"management approach" model for segment reporting. The management approach
model
is based on the way a company's management organizes segments within
the company
for making operating decisions and assessing performance. Reportable
segments
are based on products and services, geography, legal structure, management
structure, or any other manner in which management disaggregates a
company. SFAS
131 has no effect on the Company's financial statements as substantially
all of
the Company's operations are conducted in one industry segment.
Recent
pronouncements
In
September 2006, FASB issued SFAS 157 ‘Fair Value Measurements’. This
Statement defines fair value, establishes a framework for measuring
fair value
in generally accepted accounting principles (“GAAP”), and expands disclosures
about fair value measurements. This Statement applies under other accounting
pronouncements that require or permit fair value measurements, the
Board having
previously concluded in those accounting pronouncements that fair value
is the
relevant measurement attribute. Accordingly, this Statement does not
require any
new fair value measurements. However, for some entities, the
application of this Statement will change current practice. This
Statement is effective for financial statements issued for fiscal years
beginning after November 15, 2007, and interim periods within those
fiscal
years. The management is currently evaluating the effect of this pronouncement
on the consolidated financial statements.
In
September 2006, FASB issued SFAS 158 ‘Employers’ Accounting for Defined Benefit
Pension and Other Postretirement Plans—an amendment of FASB Statements No. 87,
88, 106, and 132(R)’ This Statement improves financial reporting by requiring an
employer to recognize the over funded or under funded status of a defined
benefit postretirement plan (other than a multiemployer plan) as an
asset or
liability in its statement of financial position and to recognize changes
in
that funded status in the year in which the changes occur through comprehensive
income of a business entity or changes in unrestricted net assets of
a
not-for-profit organization. This Statement also improves financial
reporting by
requiring an employer to measure the funded status of a plan as of
the date of
its year-end statement of financial position, with limited exceptions.
An
employer with publicly traded equity securities is required to initially
recognize the funded status of a defined benefit postretirement plan
and to
provide the required disclosures as of the end of the fiscal year ending
after
December 15, 2006. An employer without publicly traded equity securities
is
required to recognize the funded status of a defined benefit postretirement
plan
and to provide the required disclosures as of the end of the fiscal
year ending
after June 15, 2007. However, an employer without publicly traded equity
securities is required to disclose the following information in the
notes to
financial statements for a fiscal year ending after December 15, 2006,
but
before June 16, 2007, unless it has applied the recognition provisions
of this
Statement in preparing those financial statements:
|
1.
|
A
brief description of the provisions of this
Statement
|
|
2.
|
The
date that adoption is required
|
|
3.
|
The
date the employer plans to adopt the recognition provisions
of this
Statement, if earlier.
|
The
requirement to measure plan assets and benefit obligations as of the
date of the
employer’s fiscal year-end statement of financial position is effective for
fiscal years ending after December 15, 2008. The management is currently
evaluating the effect of this pronouncement on the consolidated financial
statements.
In
February 2007, FASB issued FASB Statement No. 159, The Fair Value Option
for
Financial Assets and Financial Liabilities. FAS 159 is effective for
fiscal
years beginning after November 15, 2007. Early adoption is permitted
subject to
specific requirements outlined in the new Statement. Therefore, calendar-year
companies may be able to adopt FAS 159 for their first quarter 2007
financial
statements.
The
new
Statement allows entities to choose, at specified election dates, to
measure
eligible financial assets and liabilities at fair value that are not
otherwise
required to be measured at fair value. If a company elects the fair
value option
for an eligible item, changes in that item's fair value in subsequent
reporting
periods must be recognized in current earnings. FAS 159 also establishes
presentation and disclosure requirements designed to draw comparison
between
entities that elect different measurement attributes for similar assets
and
liabilities.
2.
Acquisition of LandBank, LLC
On
January 26, 2006, Landbank Group, Inc. acquired all of the membership
interests
in Landbank, LLC in exchange for the transfer, by certain members of
the
previous management, of an aggregate of 8,200,002 shares of Landbank
Group,
Inc.’s stock (post-split), in exchange for which such members of previous
management received Landbank Group, Inc.’s former wholly-owned subsidiary,
iStorage Networks Group, Inc., and $140,000 in cash.
3.
Due to/from related parties
The
Company has amounts due to various related parties that are directors
and
companies related through common ownership. These amounts are unsecured,
have no
stated rates of interest, and have no maturity dates. Interest expense
has been
imputed on amounts due to related companies using a per annum rate
of eight
percent (8%). As of June 30, 2007, the Company had $2,947,594 due to
related
parties. Interest expense to related parties for the six month periods
ended
June 30, 2007 and 2006 was $79,301 and $48,988, respectively.
|
|
Principal
|
Interest
|
Total
|
||||||||
|
John
Beck's Amazing Profits, LLC
|
$ |
513,546
|
$ |
-
|
$ |
513,546
|
|||||
|
Mentoring
of America, LLC
|
52,460
|
8,608
|
61,068
|
||||||||
|
HG,
Inc.
|
1,719,394
|
160,916
|
1,880,310
|
||||||||
|
HG
Marketing, LLC
|
382,606
|
82,983
|
465,589
|
||||||||
|
Family
Products, LLC
|
-
|
2,393
|
2,393
|
||||||||
|
Joyce
Beck
|
-
|
-
|
-
|
||||||||
|
Gaytan,
Baumblatt, Leevan
|
24,688
|
-
|
24,688
|
||||||||
|
|
$ |
2,692,694
|
$ |
254,900
|
$ |
2,947,594
|
|||||
Gaytan,
Baumblatt, & Leevan is an accounting firm owned by Ray Gaytan, a Director of
the Company (see note 11). Joyce Beck is the wife of John Beck, a former
Director of the Company, and the funds owed to her by the Company were
for the
reimbursement of expenses incurred by Mrs. Beck on behalf of the
Company.
4.
Deferred revenue under the deposit method
The
Company follows FASB 66 - Accounting for Sales of Real Estate (see
note 1), and
due to the Company’s 60-day refund policy, all sales transactions, and their
related direct expenses, are not recognized until after the expiration
of the
buyer’s 60-day rescission period. As of June 30, 2007, deferred revenue totaled
$168,035 with related direct costs totaling $103,165, all of which
were land
costs.
Deferred
revenue as of June 30, 2007 was $626,632 less than the $794,667 in
deferred
revenue as of December 31, 2006. The significant reduction in deferred
revenue
is directly related to the Company’s closure of its Arizona sales office during
the three month period ended June 30, 2007. The Company closed its
sales office
due to the Company’s lack of a diversified real estate portfolio, which resulted
in the Company’s inability to continue selling properties in volume without
potentially flooding, or saturating, its various markets and/or geographic
areas
with properties for sale, which can adversely affect market prices
and make it
difficult for the Company’s customers to resell their properties at a profit.
The closure of the sales office resulted in significantly lower sales
volume,
and revenue, during the three month period ended June 30, 2007, with
the end
result being the significant decrease in deferred revenue, which represents
the
unrecognized revenue (sales) for both May and June 2007.
5.
Loans Payable
In
August
2005, the Company purchased certain sections of land in Pershing County,
Nevada
subject to loans from Western Title Company. Each of the 18 sections
of land
secures their respective loan. The loans bear interest at 10% per annum
and
mature September 1, 2015, unless the corresponding real estate is sold
sooner,
in which case, the loan must be repaid.
During
the six month period ended June 30, 2007, the Company made total principal
payments of $19,110 and interest payments of $24,919. As of this filing,
the
Company is current on its payment obligations.
The
scheduled principal payments on these notes are as follows:
|
Years
ended
|
|||
|
June
30,
|
|||
|
2008
|
$ |
41,196
|
|
|
2009
|
45,510
|
||
|
2010
|
50,276
|
||
|
2011
|
55,540
|
||
|
2012
|
61,356
|
||
|
Thereafter
|
239,893
|
||
|
Total
|
493,771
|
||
|
Current
portion
|
41,196
|
||
|
Long-term
portion
|
$ |
452,575
|
|
6.
Prepaid Expenses
Prepaid
expenses totaled $25,382 as of June 30, 2007 and consisted of rent,
insurance,
and audit fees. Prepaid rent represents both the last monthly rent
payment due
on the Company’s office in Alameda, California as well as the July 2007 rent.
Prepaid insurance relates to both the Company’s general liability and directors
& officers insurance policies and are expensed over the one-year term
of the
policies. The audit fees are in relation to the Company’s fiscal year 2006 audit
and are being expensed over the twelve month period beginning in January
2007
and ending in December 2007. The following table details prepaid expenses
as of
June 30, 2007:
|
As
of 6/30/07
|
|||
|
Rent
|
4,663
|
||
|
Insurance
|
5,719
|
||
|
Audit
fees
|
15,000
|
||
|
25,382
|
|||
7.
Computers
As
of
June 30, 2007, the Company had net computers totaling $12,129, which
consisted
of computers and related computer hardware. These assets were purchased
for use
in the Company’s Alameda office and were put into service in February 2007.
These assets were recorded at their cost of $20,789, which included
the purchase
price, tax, and freight. The Company is expensing these assets over
a twelve
(12) month period beginning February 2007, with the monthly depreciation
totaling $1,732. During the six month period ended June 30, 2007, the
Company
recorded depreciation expense of $8,660, with one-half of that amount
allocated
to an affiliate who shares the Alameda office with the Company. For
the six
months ended June 30, 2007, the Company’s net depreciation expense was
$4,330.
8.
Accounts Payable
Accounts
payable consist of normal expenses incurred during the course of business,
and
the Company’s payables are current with regard to vendor terms. Accounts payable
totaled $122,250 as of June 30, 2007, with three vendors accounting
for $110,871
of the total. In regard to those three vendors, $80,631 was owed to
the
Company’s outside attorneys and $30,240 was owed to two (2) different property
owners associations in relation to annual dues on properties owned
by the
Company.
9.
Accrued Expenses
Accrued
expenses totaled $155,118 as of June 30, 2007 and consisted of the
following:
|
Accrued
payroll
|
$ |
58,173
|
|
|
Accrued
payment (see note 15)
|
50,000
|
||
|
Accrued
legal fees
|
25,000
|
||
|
Accrued
consultant fees
|
13,600
|
||
|
Accrued
audit fees
|
7,500
|
||
|
Accrued
insurance
|
845
|
||
|
Total
|
$ |
155,118
|
10. Stockholders’
Deficit
Retro-active
recapitalization of shares
outstanding
As
stated
above in note 2, the Company acquired all of the membership interests
of
Landbank, LLC on January 26, 2006. As a result, the Company’s stockholder equity
was retroactively restated to reflect the equivalent number of shares
received
in the merger, which was 8,200,002 as adjusted for the 1 for 10 reverse
stock
split on June 30, 2006 (82,000,000 pre-split). Stockholders’ equity was $82,373
as of December 31, 2005.
Common
Stock
Issued
The
Company issued 93,333 shares of its common stock, par value $0.0001
per share,
to Aurelius Consulting Group/Red Chip Companies (see note 13) on April
4, 2007
as payment in full for services valued at $84,000. The Company recorded
the
$84,000 in expense during the fiscal year ended December 31, 2006.
The total
number of shares of the Company’s common stock issued and outstanding
immediately after the issuance of the 93,333 shares was 9,928,664.
Stock
Split
On
March
3, 2006, the Company obtained written consent from stockholders holding
a
majority of the Company’s outstanding shares of voting securities to authorize a
reverse split of the Company’s outstanding common stock. Pursuant to the terms
of the written consent, the Company completed a 1 for 10 reverse
split of its
common stock, with special treatment for certain Company shareholders
to
preserve round lot shareholders.
The
financial statements have been retroactively restated for the effects
of the
above stock splits.
11.
Related-party transactions
The
Company pays a royalty to related companies equal to 35% of gross profit
received by the Company on each all-cash sale generated by leads provided
by
that related company. Gross profit is defined as land sale revenue
reduced by
inventory cost, sales commissions, credit card merchant fees, and deed
of trust
transfer costs. The related companies are indirectly owned and controlled
by two
of the Company’s principal stockholders, who are also officers and directors of
the Company. A former director of the Company receives a profit participation
of
50% of the royalty payments received by one of the related companies,
pursuant
to its royalty agreement with the Company, for his services to that
related
company. During the six month periods ended June 30, 2007 and 2006,
the Company
recorded royalty expense to related parties of $177,575 and $305,934,
respectively.
The
Company has an agreement with Investment Capital Researchers, Inc.
(“ICR”), a
Company owned by a former member of the Company’s Board of Directors. Pursuant
to the agreement, ICR received 200,000 shares (post-split) of the Company’s
common stock on June 30, 2006 and may receive an additional 200,000
shares of
the Company’s common stock (post-split) upon the achievement of specified
milestones. Under the terms of the agreement, the issued shares can
only be sold
or transferred over a four-year period at the rate of 100,000 on each
anniversary of the closing date of a secondary offering. All shares
issued
pursuant to this agreement will be restricted securities. The 200,000
shares
issued on June 30, 2006 were valued at $120,000 based on fair value
of the
shares at the time of issuance. The Company expensed the entire $120,000
as
non-cash consulting fees during the six month period ended June 30,
2006,
The
Company shares its principal office in Van Nuys and its offices in
both American Fork and Alameda with related parties. The
Company does not pay rent for its Van Nuys and American Fork
facilities, but, if it were required to pay rent on these facilities,
the
Company estimates the combined monthly rent value being approximately
$1,200,
which the Company deems as not material. The related parties are companies
owned
and controlled by two of the Company’s principal stockholders, who are
officers and directors of the Company. The Company's office in Phoenix,
Arizona
is subleased from a related company owned by two of the Company’s directors.
Under the terms of the sublease arrangement, the Company pays a pro
rata share
of the rent paid by the related company, based upon the portion of
the space
occupied by the Company. During the six month periods ended June 30,
2007 and
2006, the Company recorded related party rent expense totaling $11,112
and
$11,109, respectively.
On
December 22, 2006, the Company entered into a lease for approximately
1,200
square feet of office space in Alameda, California. The lease is for
a term of
twenty-five (25) months, commencing January 1, 2007. Per the terms
of the lease,
the first month is rent-free, with a base rent of $2,295 per month
for months
two (2) through twelve (12) and $2,366 per month for months thirteen
(13)
through twenty-five (25). The Company is also responsible for paying
its
pro-rated share of certain expenses, such as property taxes. The monthly
rent
and related expenses for the Alameda office are to be allocated to
both the
Company and its affiliate, Mentoring of America, LLC (“MAC”), with each company
paying 50% of the expenses associated with maintaining this office.
The
following table details the Company’s rent expense commitments per the terms of
the applicable lease agreements. The Company’s lease for its Arizona office
expires in January 2008, while the lease for its Alameda office expires
in
January 2009. These two leases represent the only office leases currently
entered into by the Company.
|
2007
|
2008
|
2009
|
|||||||||
|
Arizona
Office
|
$ |
22,224
|
$ |
1,852
|
$ |
-
|
|||||
|
Alameda
Office
|
12,623
|
14,196
|
1,183
|
||||||||
|
Total
|
$ |
34,847
|
$ |
16,048
|
$ |
1,183
|
|||||
A
director of the Company has, through his accounting firm, provided
accounting
service to the Company. The Company recorded related party accounting
expense
totaling $5,383 during the six month period ended June 30, 2007. The
Company
incurred $79,284 in related party accounting expense during the same
period in
fiscal year 2006.
The
Company currently pays no salary or other compensation to its Chief
Executive
Officer or President. The Company’s Chief Financial Officer is paid an annual
base salary of $110,000 for 2007.
12.
Concentration of Credit Risk
The
Company maintains certain cash balances with a commercial bank. The
Company’s
cash balance of $2,851 as of June 30, 2007 was within insured
limits.
13.
Commitments
|
|
Joint
Marketing Agreement with Aurelius Consulting Group,
Inc.
|
On
May
26, 2006, the Company entered into a Joint Marketing Agreement (the
“Agreement”)
with Aurelius Consulting Group, Inc. /Red Chip Companies (“ACG/RC”) to assist in
marketing the Company to the investment community. ACG/RC, per the
terms of the
Agreement, will among other public relations and investor relations
activities,
distribute both a research report and a newsletter to the investment
community.
In
return
for the above mentioned services, the Company was to pay ACG/RC a total
of
$150,000 in cash and restricted shares of the Company’s common stock. The cash
portion totaled $44,000, with $20,000 down and $24,000 in eight monthly
installments of $3,000 each. The remaining $106,000 was to be paid
in stock,
with $10,000 to be paid immediately and the remainder in eight monthly
installments of $12,000 each. As of December 31, 2006, the Company
had recorded
all of the expenses relating to its agreement with ACG/RC.
On
April
4, 2007, the Company issued 93,333 shares of its common stock as payment
in full
for $84,000 in accrued professional fees relating to the Company’s agreement
with ACG/RC. The total number of shares of the Company’s common stock issued and
outstanding immediately after the issuance of the 93,333 shares was
9,928,664.
The
Company’s agreement with ACG/RC expired on June 30, 2007, as of which date
the
Company had no outstanding obligations with ACG/RC.
|
|
Agreement
with Piping Partners Holdings,
Inc.
|
On
January 25, 2006, the Company entered into an agreement with Piping
Partners
Holdings, LLC (“PPH”) to assist the Company in seeking quotation of the
Company’s shares on the Over the Counter Bulletin Board (“OTCBB”).
Per
terms
of this agreement with PPH, the Company agreed to pay PPH a success
fee, which
includes any and all application and filing fees and expenses, of $235,000,
which is to be paid upon active quotation, with PPH’s assistance, of the
Company’s shares on the OTCBB, less any advance amounts, and a $10,000 advance
for legal services engaged by PPH, and approved by the Company, in
connection
with the Exchange Act Reports.
As
of
June 30, 2007, the Company had paid PPH the entire $235,000, which
was expensed
during the Company’s fiscal year ended December 31, 2006. The final payment was
made after the Company received confirmation that its common stock
was being
actively quoted on the Over-the-Counter Bulletin Board
(“OTCBB”).
14.
Options Granted to Directors and Officers
On
November 2, 2006, the Board of Directors adopted, by written consent,
the 2006
Stock Incentive Plan (“the Plan”). On November 9, 2006, the adoption of the Plan
was approved and ratified by written consent signed by the holders
of a majority
of the Company’s stock. Per the terms of the Plan, the Company is authorized to
reserve 3,000,000 shares of the Company’s authorized and unissued shares of
common stock for issuance pursuant to the Plan.
On
March
13, 2007, the Company granted an option to its Chief Financial Officer
(“CFO”)
to purchase 100,000 shares of the Company’s common stock at an exercise price of
$0.02 per share. The option vests over a four (4) year period, with
25 % vesting
of the shares vesting on March 12, 2008 and the remaining shares vesting
at
1/48th
per
month thereafter until the option is vested and exercisable with respect
to 100%
of the shares. The term of the option is ten (10) years, with an expiration
date
of March 12, 2017. The option grant was valued at $2,000 as of the
date of grant
using the Black-Sholes option pricing model in accordance with FAS
123R using
the following assumptions: volatility of 646.99%, Wall Street Journal
prime
interest rate of 8.25%, zero dividend yield, and an expected life of
four (4)
years. The Company expensed the entire $2,000 value of the option during
the
three month period ended March 31, 2007.
On
December 28, 2006, the Company granted options to two of its Directors,
one of
whom is the Company’s Chief Executive Officer and the other the President, in
consideration of their service as Directors of the company. Each Director
was
granted an option to purchase 100,000 shares of common stock at an
exercise
price of $0.12 per share, the fair value of the Company’s common stock on the
date of grant, in consideration of their service as a director of the
company.
Each option grant was valued at $11,681 as of the date of grant using
the
Black-Sholes option pricing model in accordance with FAS 123R using
the
following assumptions: volatility of 191.06%, risk free interest rate
of 4.69%,
dividend yield of zero, and expected life of five (5) years. Each of
the options
vests as follows: 50% of the shares subject to each option will vest
upon
achievement of a specified performance goal related to the Company’s stock price
and the remainder will vest on a quarterly basis thereafter at a rate
of 25% per
quarter. The options will not vest and the options will expire in the
event that
the performance goal is not achieved within the timeframe specified
by the goal.
The term of the option, and the implied service condition, is one year
from the
date of grant, so the Company began expensing the value of these options,
$1,948
per month ($974 per option), over the twelve-month term beginning in
December
2006. Accordingly, the Company recorded $11,688 in expense relating
to these
option grants during the six month period ended June 30, 2007.
On
November 9, 2006, the Company granted options to each of its two independent
directors to acquire 1,200,000 shares (600,000 shares per director)
of the
Company’s common stock pursuant to the Plan. Each option grant was valued at
$59,963 ($119,926 in the aggregate) as of the date of grant using the
Black-Sholes option pricing model in accordance with FAS 123R using
the
following assumptions: volatility of 125.95%, risk free interest rate
of 4.60%,
dividend yield of zero, and expected life of five (5) years. The options
vest as
follows: 20% of the shares subject to each option vested on December
31, 2006
and 20% of the shares subject to each option vest each year thereafter.
During
the year ended December 31, 2006, the Company recorded $23,986 of compensation
based on the fair value method under FAS 123R and is expensing the
remaining
value of the options at the rate of $2,000 per month until the entire
$119,926
has been expensed. The Company expensed $12,000 in relation to these
options
during the six month period ended June 30, 2007.
The
Company adopted SFAS No. 123-R effective November 1, 2006 using the
modified prospective method. Under this transition method, stock compensation
expense recognized in the year ended December 31, 2006 includes compensation
expense for all stock-based compensation awards granted on or after
November 1, 2006, based on the grant-date fair value estimated in
accordance with the provisions of SFAS No. 123-R.
Following
is a summary of the stock option activity:
|
Options
outstanding
|
Weighted
Average Exercise Price
|
Aggregate
Intrinsic
Value
|
|||||||||
|
Outstanding,
December 31, 2005
|
-
|
-
|
-
|
||||||||
|
Granted
|
1,400,000
|
-
|
-
|
||||||||
|
Forfeited
|
-
|
-
|
-
|
||||||||
|
Exercised
|
3,333
|
$ |
0.02
|
-
|
|||||||
|
Outstanding
December 31, 2006
|
1,400,000
|
$ |
0.02
|
-
|
|||||||
Following
is a summary of the status of options outstanding at December 31,
2006:
|
Outstanding
Options
|
Exercisable
Options
|
||||||||||||||||||||
|
Exercise
Price
|
Number
|
Average
Remaining Contractual Life
|
Average
Exercise Price
|
Number
|
Average
Exercise Price
|
||||||||||||||||
| $ |
0.0001
|
1,200,000
|
4.86
|
$ |
0.0001
|
-
|
$ |
0.0001
|
|||||||||||||
| $ |
0.12
|
200,000
|
4.99
|
$ |
0.12
|
3,333
|
$ |
0.12
|
|||||||||||||
15.
Subsequent Events
|
|
On
July 9, 2007, the Company reached an agreement with an unrelated
third
party in relation to two (2) lawsuits filed by the Company
against the
third party. Per the terms of the proposed settlement, the
Company will
pay the third party a one-time cash payment of $50,000 as
final resolution
to the disputed matter. The Company recorded the $50,000
as a nonrecurring
operating expense during the three month period ended June
30,
2007.
|
|
|
As
of this filing, the agreement has not been finalized in writing,
therefore
the $50,000 cash payment has not been made by the Company.
The pending
payment is recorded as an accrued expense as of June 30,
2007 (see note
9).
|
16.
Going Concern
The
accompanying consolidated financial statements have been prepared in
conformity
with generally accepted accounting principles which contemplate continuation
of
the company as a going concern. However, the Company has an accumulated
deficit
of $1,514,312 as of June 30, 2007, including a net loss of $397,615
for the six
month period ended June 30, 2007. The Company’s total liabilities exceeded its
total assets by $1,004,023 as of June 30, 2007. In view of the matters
described
above, recoverability of a major portion of the recorded asset amounts
shown in
the accompanying consolidated balance sheet is dependent upon continued
operations of the company, which in turn is dependent upon the Company’s ability
to raise additional capital, obtain financing and succeed in its future
operations. The financial statements do not include any adjustments
relating to
the recoverability and classification of recorded asset amounts or
amounts and
classification of liabilities that might be necessary should the Company
be
unable to continue as a going concern.
Management
has taken the following steps to revise its operating and financial
requirements, which it believes are sufficient to provide the Company
with the
ability to continue as a going concern
|
1.
|
Hired
additional Land Acquisition Specialists to help acquire more
properties,
as well as a more diversified mix of properties, that will
allow the
Company to increase sales volume while minimizing the risk
of saturating a
particular market, or geographic location, and thereby adversely
affecting
the ability of the Company’s customers to resell their properties at a
profit.
|
|
2.
|
Hired
consultants to assist the Company in securing additional
financing.
|
Management
believes that actions presently being taken to (1) obtain additional
funding,
and (2) implement its strategic plans provide the opportunity for the
Company to
continue as a going concern. Furthermore, two of the principal shareholders
have
demonstrated both their ability and willingness to lend working capital
to the
Company and are committed to doing so into the future. As of June 30,
2007,
these principal shareholders have directly, and indirectly, lent the
company
$2,922,906 (see note 3).
ITEM
2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS FOR THE THREE AND SIX MONTHS
ENDED
JUNE 30, 2007
The
following discussion of our financial condition and results of operations
should
be read in conjunction with our financial statements and the notes to
those
statements included elsewhere in this Form 10-QSB filing. In addition to
the historical financial information, the following discussion and analysis
contains forward-looking statements that involve risks and uncertainties.
Our
actual results may differ materially from those anticipated in these
forward-looking statements as a result of certain factors, including
those set
forth under "Risk Factors" and elsewhere in this Form 10-QSB
filing.
The
Company acquired Landbank, LLC and its real property operations in January
2006.
Concurrent with this acquisition, there was also a change in management
and
principal ownership of the Company. Prior to its acquisition of Landbank,
LLC,
the Company was engaged, through its former operating subsidiary, iStorage
Networks, Inc (iSNG), in the development of computer network storage
solutions.
From 1999 through November 2004, the Company was dormant, with no operations.
It
was only during the period from November 2004 to December 2005 that the
Company,
as iSNG, was operational. Landbank, LLC had only a limited operating
history
prior to being acquired by the Company, commencing operations in the
second
quarter of 2005 and had no operations, assets or liabilities as of December
31,
2004.
Since
January 2006, the Company has been engaged solely in the business of
acquiring
parcels of land in bulk, primarily through the real property tax lien
foreclosure process, and then reselling the land as individual parcels.
The
Company’s business is asset intensive. Since the business is predicated on
identifying, repackaging, and selling properties, long-term investment
decisions
do not play a significant role. Interest rate trends do not necessarily
impact
the Company’s business; as such rates tend to produce a canceling effect in
terms of both the purchase and the resale prices.
We
currently have operations in nine states, and have also acquired properties
in
Mexico. We are not dependent on any single customer and no customer represents
over 10% of our total revenues.
The
objective of the Company is to achieve and sustain a manageable growth
rate that
will enable it to become a market leader in its field. Management believes
that
this objective can be achieved by expanding the Company’s “direct to consumer”
marketing efforts, developing networking responsiveness to assess buyer
satisfaction, and dedicating additional resources to acquisition efforts.
To
date, marketing efforts have indicated that customers who buy may have
a
recurring need to buy for investment and/or resale purposes. Consequently,
each
customer represents the potential for multiple sales. The fact that the
Company
operates in several geographical regions tends to mitigate any seasonal
or
regional factors that might impact its business operations.
The
Company finances its operations by loans from affiliated companies and
revenues
generated from operations. From the commencement of operations in the
second
quarter of 2005 through June 30, 2007, the Company had net borrowings
from its
affiliates, including accrued interest, of $2,947,594 and net recognized
revenues totaling $7,372,876, of which $1,974,226 was gross profit, which
is
defined as revenue less the cost of the land, processing fees, merchant
fees,
dues and taxes, and royalties. We derive revenue solely from the sale
of the
properties we acquire.
We
incur
the following costs of revenue:
Operating
Expenses
Sales
and Marketing Expense: Our sales and marketing expenses, excluding royalty
agreements, consist primarily of personnel costs for our sales and marketing
staff, sales commissions, travel and lodging, marketing programs, allocated
facilities, and other related overhead. We pay commissions as we recognize
revenue and collect receivables.
Acquisition
Team: We have a team of six acquisition specialists responsible for
identifying and acquiring suitable properties. Expenses consist primarily
of
personnel costs for team members, purchase commissions, travel and lodging,
and
other related overhead. We pay commissions only upon completion of the
purchase
transaction, including transfer of the deed.
General
and Administrative Expenses: Our general and administrative expenses
consist of personnel costs for executives and staff (finance/accounting
and
human resources), as well as costs relating to travel and lodging,
accounting/audit services, legal and other professional services, and
other
costs incurred during the normal course of operations.
Acquisition
Costs: To date we have acquired all of our properties, with
the exception of certain parcels in Nevada, for cash. The average cost
of
properties that we acquire varies depending on the size, location and
other
specific characteristics of each property.
Income
Taxes: Our income tax expense includes the tax obligations for the multiple
tax jurisdictions in which we operate. The income tax expense is affected
by the
profitability of our operations in the jurisdictions in which we operate,
the
applicable tax rate for these jurisdictions, and our tax policies. We
make
significant estimates in determining our consolidated income tax expense.
If our
actual amounts differ from these estimates, our provision for income
taxes could
be materially impacted.
Royalty
payment: We derive a significant number of customers from databases
developed by certain of our affiliates. Pursuant to royalty agreements,
we pay a
royalty to these affiliates equal to 35% of gross profits (less acquisition
costs) earned by us on any cash sale of a property to a customer referred
to us
under these royalty agreements. Our ability to draw on these customer
databases
significantly reduces our direct sales and marketing expenses.
In
the
future, the Company intends to continue to make use of its affiliate
databases,
but also hopes to develop other distribution methods, particularly where
the
Company acquires a significant number of lots in one area. The Company
intends
to expand its purchasing of suitable properties to include as many different
states/geographic regions as its current resources will allow.
COMPARISON
OF THE THREE AND SIX MONTH PERIODS ENDED JUNE 30, 2007 AND
2006
Results
of Operations
Net
revenue for the three month period ended June 30, 2007 was $650,590,
which
represents an increase of $80,848, or 14.1%, from the $569,742 recorded
during
the same period in fiscal year 2006. The increase in net revenue occurred
despite a reduction in the number of properties sold, as the Company
sold 373
properties during the current three month period, a decrease of 218,
or 36.9%,
from the 591 properties sold during the same three month period in fiscal
year
2006. Net revenue increased during the three month period ended June
30, 2007
due to an increase in the average selling price, which was $1,744 per
property
in the current three month period, an increase of $780, or 80.9%, from
the
average selling price of $964 per property during the same three month
period
last year. The increase in the average selling price is due to both the
improved
quality of the properties sold and their related market value. The decrease
in
the number of properties sold is primarily the result of the Company’s inability
to acquire a diversified portfolio of properties that would allow the
Company to
continue selling in volume without flooding, or saturating, a particular
market,
and/or geographic location, and depressing property values in the process.
The
Company is constantly trying to manage revenue/volume growth while also
trying
to protect its markets from becoming flooded, or saturated, with properties
available for sale, which may depress property values and adversely affects
the
ability of our Customers to resell their properties at a profit. During
the
three month period ended June 30, 2007, the Company closed its sales
office in
Arizona and stopped selling properties in volume due to the Company’s lack of
diversified real estate holdings. The Company is currently working to
acquire
additional properties and diversify its real estate holdings, but there
can be
no assurance that we’ll be successful, and therefore, no assurance that we’ll
begin selling properties in volume again.
During
the six month period ended June 30, 2007, net revenue totaled $1,552,297,
a
decrease of $674,786, or 30.2%, from the $2,227,083 recorded during the
same
period in fiscal year 2006. The Company sold 761 properties during the
six
months ended June 30, 2007, a decrease of 961 units, or 55.8%, from the
1,722
properties sold during the same six month period last year. The average
selling
price during the current six month period was $2,040 per property, an
increase
of $747 per property, or 57.8%, from the $1,293 average selling price
during the
same period last year. Both the increase in average selling price and
the
decrease in units sold during the six month period ended June 30, 2007,
as
compared to the same period in 2006, are due to the same factors discussed
in
the previous paragraph.
The
following table details the number of properties sold, the state in which
the
properties sold were located, and the net revenue generated by the properties
sold for both the three and six month periods ended June 30, 2007 and
2006:
|
As
of June 30, 2007
|
As
of June 30, 2006
|
|||||||||||||||||||||||||||||||
|
3-Months
|
6-Months
|
3-Months
|
6-Months
|
|||||||||||||||||||||||||||||
|
Properties
Sold
|
Revenue
(000)
|
Properties
Sold
|
Revenue
(000)
|
Properties
Sold
|
Revenue
(000)
|
Properties
Sold
|
Revenue
(000)
|
|||||||||||||||||||||||||
|
Arizona
|
27
|
$ |
40.0
|
31
|
$ |
46.2
|
-
|
$ |
-
|
-
|
$ |
-
|
||||||||||||||||||||
|
Colorado
|
1
|
33.2
|
8
|
89.5
|
2
|
20.7
|
2
|
20.7
|
||||||||||||||||||||||||
|
Florida
|
2
|
10.0
|
1
|
0.5
|
-
|
-
|
-
|
-
|
||||||||||||||||||||||||
|
Michigan
|
8
|
12.8
|
8
|
12.8
|
-
|
|||||||||||||||||||||||||||
|
New
Mexico
|
22
|
49.0
|
21
|
42.9
|
-
|
-
|
-
|
-
|
||||||||||||||||||||||||
|
Oklahoma
|
18
|
16.5
|
26
|
21.8
|
89
|
79.4
|
340
|
500.7
|
||||||||||||||||||||||||
|
Pennsylvania
|
102
|
219.4
|
274
|
702.2
|
106
|
127.8
|
144
|
198.6
|
||||||||||||||||||||||||
|
Texas
|
193
|
269.7
|
392
|
636.4
|
394
|
341.8
|
1,236
|
1,507.1
|
||||||||||||||||||||||||
|
373
|
$ |
650.6
|
761
|
$ |
1,552.3
|
591
|
$ |
569.7
|
1,722
|
$ |
2,227.1
|
|||||||||||||||||||||
Cost
of
goods sold during the three month period ended June 30, 2007 totaled
$512,255,
an increase of $67,251, or 15.1%, from the $445,004 incurred during the
same
period in fiscal year 2006. The average cost of a property sold during
the
current three month period was $1,373, an increase of $620, or 82.3%,
from the
per property average of $753 during the same period in fiscal year 2006.
As a
percentage of the average selling price, the average property cost in
the
current quarter was 78.7% as compared to 78.1% during the same period
in 2006.
The increase in the average property cost, in terms of dollars, is due
primarily
to the improved quality of the properties that were sold during the current
three month period; with the average land cost being $901 per property
during
the current period as compared to $469 per property during the same period
last
year. This represents an increase of 92.1% on a year-to-year basis, which
is
more than the 80.9% increase in the average selling price of properties
sold
during the current three month period as compared to the same period
last year.
Also adversely affecting the average cost of properties sold during the
current
three month period were increases in merchant fees, processing fees,
sales
commissions, and royalties to a related party. Merchant fees increased,
on a per
property basis, due to the significantly higher average selling price
that the
Company achieved during the current quarter, as merchant fees are calculated
as
a percentage of the value of each transaction. Sales commissions, as
calculated
on a per property basis, increased for the same reason that merchant
fees
increased. Processing fees are dictated by third parties who are not
under the
Company’s control, so any increase in processing fees is strictly related to
fees charged to the Company by these third parties. Royalties to related
parties
during the current three month period increased in regard to the per
property
average, as compared to the same period last year, but the amount of
royalty
expense recorded in the current quarter was actually less than the amount
recorded during the same period last year.
Cost
of
goods sold during the six month period ended June 30, 2007 was $1,149,282,
a
decrease of $486,704, or 29.7%, from the $1,635,986 incurred during the
same
period in fiscal year 2006. As a percentage of net revenue, cost of goods
sold
was 74% during the current six month period and 73.4% during the same
period
last year. The average cost of a property sold during the current six
month
period was $1,510, an increase of $560, or 58.9%, as compared to the
$950
average cost per property sold during the same period last year. The
increase in
the average property cost, in terms of dollars, is due primarily to the
improved
quality of the properties that were sold during the current six month
period;
with the average land cost being $929 per property during the current
period as
compared to $589 per property during the same period last year. For the
current
six month period, royalties to a related party totaled $177,575, a decrease
of
$128,359, or 41.9%, from the $305,934 that was recorded during the same
period
last year. The decrease in royalties to a related party is strictly a
function
of the Company’s net revenue and gross profit, as the royalty is calculated as a
percentage of the Company’s gross profit (see note 11 of the financial
statements). Sales commission expense during the current six month period
was
$70,095, a decrease of $20,341, or 22.4%, from the $90,436 that was incurred
during the same period in 2006. Sales commission expense decreased due
to the
fact that the Company closed its Arizona sales office and stopped selling
properties via sales personnel, and therefore, stopped incurring sales
commission expense. Both merchant fees and processing fees increased
during the
current six month period, as measured on a year-to-year basis, with the
Company
having no control over the fees charged by these independent third
parties.
The
Company’s cost of goods sold, and the corresponding average cost per property
sold, for both the three and six month periods ending June 30, 2007,
and 2006,
is detailed below:
|
As
of June 30, 2007
|
As
of June 30, 2006
|
|||||||||||||||||||||||||||||||
|
3-Months
|
6-Months
|
3-Months
|
6-Months
|
|||||||||||||||||||||||||||||
|
Total
(000)
|
Per
lot average
|
Total
(000)
|
Per
lot average
|
Total
(000)
|
Per
lot average
|
Total
(000)
|
Per
lot average
|
|||||||||||||||||||||||||
|
Land
Cost
|
$ |
336.0
|
$ |
901
|
$ |
706.8
|
$ |
929
|
$ |
277.2
|
$ |
469
|
$ |
1,014.5
|
$ |
589
|
||||||||||||||||
|
Royalty
to related party
|
35.1
|
94
|
177.6
|
233
|
54.8
|
93
|
305.9
|
178
|
||||||||||||||||||||||||
|
Processing
fees
|
53.2
|
143
|
104.9
|
138
|
26.6
|
45
|
100.0
|
58
|
||||||||||||||||||||||||
|
Merchant
fees
|
29.7
|
80
|
61.6
|
81
|
11.3
|
19
|
53.7
|
31
|
||||||||||||||||||||||||
|
Sales
commissions
|
30.0
|
80
|
70.1
|
92
|
28.1
|
47
|
90.4
|
52
|
||||||||||||||||||||||||
|
Dues
& taxes
|
28.3
|
75
|
28.3
|
37
|
47.0
|
80
|
71.5
|
42
|
||||||||||||||||||||||||
| $ |
512.3
|
$ |
1,373
|
$ |
1,149.3
|
$ |
1,510
|
$ |
445.0
|
$ |
753
|
$ |
1,636.0
|
$ |
950
|
|||||||||||||||||
Gross
profit for the three months ended June 30, 2007 was $138,335, an
increase of
$13,597, or 10.9%, as compared to gross profit of $124,738 during
the three
months ended June 30, 2006. As a percentage of net revenue, gross
profit was
21.3% during the current period and 21.9% during the same period
in fiscal year
2006. During the six months ended June 30, 2007, gross profit totaled
$403,015,
a decrease of $188,082, or 31.8%, as compared to gross profit of
$591,097 during
the same period in 2006. As a percentage of net revenue, gross profit
was 26%
during the current six month period and 26.5% during the same period
in fiscal
year 2006. The decrease in gross profit, as measured in dollars,
for both the
three and six month periods ended June 30, 2007 as compared to the
same periods
in 2006, was due to the decrease in the number of properties sold.
The decrease
in gross profit, as measured as a percentage of net revenue, for
both the three
and six month periods ended June 30, 2007 as compared to the same
periods in
2006, was due to increases in processing fees and merchant fees,
both of which
are beyond the control of the Company and are dictated by independent
third
parties.
Operating
expenses totaled $345,107 during the three months ended June 30,
2007, which
represents a decrease of $423,443, or 55.1%, from the $768,550 that
was incurred
during the same period last year. The primary reason for the significant
decrease in operating expenses is due to the fact that the Company
recorded a
nonrecurring, non-cash charge of $374,667 in relation to the issuance
of shares
of the Company’s common stock for services in June 2006. Also contributing to
the decrease was the $50,000 reduction in investor relations expenses
and the
$44,010 decrease in travel expenses as compared to the same three
month period
in fiscal year 2006. The decrease in investor relations expense was
the result
of the Company having recorded all of the costs associated with its
agreement
with its current investor relations firm in fiscal year 2006 (see
note 13 of the
financial statements). Travel expenses decreased as the result of
fewer trips
being taken by our Land Acquisition Specialists, who have been doing
the
majority of their research online. Salaries and related expenses
decreased by
approximately $3,600 during the current quarter, while compensation
to Officers
and Directors increased by approximately $39,400 in the current quarter
due to
(1) wages paid to the Company’s Chief Financial Officer ($27,500), and (2) the
amortization of options granted to Directors of the Company ($11,900
– see note
14 of the financial statements). Also included in operating expenses
for the
current three month period is a nonrecurring charge (see note 15
of the
financial statements) in the amount of $50,000 that was accrued as
of June 30,
2007. This accrued liability is in relation to a proposed agreement
made between
the Company and an unrelated third party regarding the Company’s Pershing
County, Nevada properties.
During
the six month period ending June 30, 2007, operating expenses totaled
$694,810,
a decrease of $363,076, or 34.3%, from the $1,057,886 that was incurred
during
the same period last year. As previously mentioned, the primary reason
for the
significant decrease in operating expenses is due to the fact that
the Company
recorded a nonrecurring, non-cash charge of $374,667 in relation to
the issuance
of shares of the Company’s common stock for services in June 2006. Overall,
professional fees decreased by $512,285 during the current six month
period as
compared to the same period in fiscal year 2006. The other factor driving
the
reduction in professional fees was the elimination of $70,000 in consulting
fees
that the Company paid two (2) consultants during the six month period
ending
June 30, 2006. Reductions in travel expenses ($49,096), legal fees
($20,076),
and investor relations ($48,325) were partially offset by increases
in
compensation paid to Officers and Directors ($80,688), salaries and
related
expenses ($85,442), insurance ($23,650), and accounting/audit fees
($13,524).
The reduction in both travel expenses and investor relations expenses
were
explained in the previous paragraph, while the increase in Officers
and
Directors compensation relates to the fact that there were no paid
Officers
and/or Directors during the first six months of 2006. Salaries and
related
expenses increased due to the Company having fifteen employees during
the
majority of the current six month period, while headcount was ramping
up to
thirteen employees during the same period in fiscal year 2006. Insurance
expense
increased during the current period because the Company did not have
insurance
policies during the first six months of 2006, while accounting/audit
fees
increased because the Company was not accruing accounting/audit fees
during the
first six months of 2006. As previously mentioned, the Company accrued
a
nonrecurring, $50,000 expense during the six month period ended June
30, 2007
(see note 15 of the financial statements). This accrued liability is
in relation
to a proposed agreement made between the Company and an unrelated third
party
regarding the Company’s Pershing County, Nevada properties.
The
following table details operating expenses for both the three and six
month
periods ended June 30, 2007 and 2006:
|
FY
2007
|
FY
2006
|
||||||||||||||
|
3-Months
|
6-Months
|
3-Months
|
6-Months
|
||||||||||||
|
Salaries
& related
|
$ |
146.8
|
$ |
295.7
|
$ |
150.4
|
$ |
210.3
|
|||||||
|
Directors
& Officers compensation
|
39.4
|
80.7
|
-
|
-
|
|||||||||||
|
Legal
fees
|
25.4
|
89.2
|
37.6
|
109.3
|
|||||||||||
|
Accounting/audit
fees
|
15.0
|
30.0
|
13.5
|
16.5
|
|||||||||||
|
Investor
relations
|
-
|
9.3
|
50.0
|
57.6
|
|||||||||||
|
Professional
fees
|
18.8
|
23.1
|
423.9
|
535.3
|
|||||||||||
|
Office
rent
|
8.9
|
16.8
|
5.5
|
11.1
|
|||||||||||
|
Travel
|
2.8
|
18.3
|
46.9
|
67.4
|
|||||||||||
|
Insurance
|
9.6
|
23.6
|
-
|
-
|
|||||||||||
|
Depreciation
|
2.6
|
4.3
|
-
|
-
|
|||||||||||
|
Nonrecurring
charge – Nevada properties
|
50.0
|
50.0
|
-
|
-
|
|||||||||||
|
Other
|
25.8
|
53.8
|
40.8
|
50.4
|
|||||||||||
| $ |
345.1
|
$ |
694.8
|
$ |
768.6
|
$ |
1,057.9
|
||||||||
During
the three month period ended March 31, 2006, the Company incurred a one-time
cash charge of $140,000 in relation to its acquisition of Landbank, LLC
(see
note 2 of the accompanying notes to the financial statements). No such
extraordinary charge was incurred by the Company during the three, or
six, month
periods ended June 30, 2007.
Interest
expense for the three months ended June 30, 2007 totaled $52,095, of
which
$12,508 was interest incurred on the Company’s bank loan (see note 5 of the
financial statements) and the remaining $39,587 was interest incurred
on loans
from related parties (see note 3 of the financial statements). During
the same
three month period in fiscal year 2006, interest expense was $43,562,
with
$13,123 relating to the bank loan and the remaining $30,439 relating
to loans
from related parties. For the six month period ending June 30, 2007,
interest
expense totaled $104,220, with $24,919 relating to the bank loan and
$79,301
relating to interest accrued on the related party borrowings. Interest
expense
was $76,941 during the same six month period in 2006, with $27,953 relating
to
the bank loan and the remaining $48,988 relating to the related party
loans. The
increase in interest expense during both the three and six month periods
ended
June 30, 2007, as compared to the same periods in fiscal year 2006, is
due
almost entirely to the interest accrued on the related party loans. The
Company’s increased borrowing from related parties has resulted in an increase
in interest expense.
The
net
loss for the three months ended June 30, 2007 totaled $258,867, a decrease
of
$428,507 from the net loss of $687,374 incurred during the same three
month
period in 2006. As previously mentioned, the primary reason for the
significant
decrease in net loss during the three month period ended June 30, 2007,
as
compared to the same period in 2006, is due to the fact that the Company
recorded a nonrecurring, non-cash charge of $374,667 in relation to
the issuance
of shares of the Company’s common stock for services in June 2006. Additional
factors were the decreases in professional fees, investor relations
expenses,
and travel expenses, which were partially offset by increases in compensation
paid to Officers and Directors and salaries and related expenses. The
net loss
for the six months ending June 30, 2007 was $397,615, a decrease of
$286,115
from the net loss of $683,730 for the same six month period in 2006.
The
reduction in net loss was primarily attributable to (1) the elimination
of the
nonrecurring, non-cash charge of $374,667 that was taken in June 2006,
and (2)
the nonrecurring, cash expense of $140,000 relating to the Company’s acquisition
of Landbank, LLC in January 2006. These cost reductions were partially
offset by
the increases in compensation paid to Officers and Directors ($80,688),
salaries
and related expenses ($85,442), and the nonrecurring $50,000 charge
that the
Company accrued as of June 30, 2007 relating to its Pershing County,
Nevada
properties (see note 15 of the financial statements).
Assets
and Liabilities
The
Company had a cash balance of $2,851 as of June 30, 2007, a decrease
of $263,119
from the $265,970 on hand as of December 31, 2006. The decrease in
cash is
primarily attributable to the Company’s net loss of $397,615 during the six
month period ended June 30, 2007, as well as the $626,632 reduction
in deferred
revenue and the $216,255 reduction in accounts payable and accrued
expenses. The
Company also used $20,789 to purchase capital equipment (computers
and related
hardware) and an additional $19,110 to repay its bank loan (see note
5 of the
financial statements). These cash outflows were partially offset by
the $394,880
gained from inventory sold, the $306,719 borrowed from related parties,
and the
$197,335 gained from the reduction in prepaid expenses and other
receivables.
The
following is a summary of cash used during the six month period ended
June 30,
2007:
|
Cash
as of 12/31/06
|
$ |
265,970
|
||
|
Net
loss for the six months ended 6/30/07
|
(397,615 | ) | ||
|
Add
back depreciation - capital equipment
|
8,660
|
|||
|
Add
back amortization - options
|
25,688
|
|||
|
Add
back shares issued for services
|
84,000
|
|||
|
Less
cash used to pay down accounts
|
||||
|
payable
and accrued expenses
|
(216,255 | ) | ||
|
Less
reduction in deferred revenue
|
(626,632 | ) | ||
|
Less
principal payments on bank loan
|
(19,110 | ) | ||
|
Less
capital equipment purchases
|
(20,789 | ) | ||
|
Add
cash from inventory sold
|
394,880
|
|||
|
Add
cash borrowed from related parties
|
306,719
|
|||
|
Add
cash from reduction in prepaid expenses
|
188,793
|
|||
|
Add
cash from reduction in other receivables
|
8,542
|
|||
|
Cash
provided during the six months ended 6/30/07
|
(263,119 | ) | ||
|
Cash
as of 6/30/07
|
$ |
2,851
|
Inventory
was $2,842,383 as of June 30, 2007, a decrease of $394,880 from the
$3,237,263
that was held as of December 31, 2006. The Company purchased $163,723
of new
properties during the six months ended June 30, 2007, with $97,370
of the
purchases being properties located in Texas and the remaining $66,353
being
properties located in Pennsylvania. The Company also capitalized $148,210
in
costs associated with its property holdings, with the costs consisting
of taxes,
dues and association fees, and improvement costs. In regard to the
$148,210 of
capitalized expenses, $118,453 was directly related to costs incurred
for the
subdividing of the Company’s Pershing County, Nevada property. Land costs
associated with the Company’s revenue for the six month period ended June 30,
2007 were $706,813, which, net of the $163,723 in land purchases and
$148,210 in
capitalized costs, equates to the aforementioned $394,880 reduction
in
inventory. The following is a summary of the Company’s inventory holdings as of
June 30, 2007:
|
Actively
Marketed
|
Being
prepared for marketing
|
Total
|
|||||||||
|
Arizona
|
$ |
1,350
|
$ |
-
|
$ |
1,350
|
|||||
|
Colorado
|
261,870
|
-
|
261,870
|
||||||||
|
Michigan
|
11,191
|
-
|
11,191
|
||||||||
|
Mexico
|
-
|
298,348
|
298,348
|
||||||||
|
Nevada
|
-
|
973,929
|
973,929
|
||||||||
|
New
Mexico
|
16,301
|
-
|
16,301
|
||||||||
|
Oklahoma
|
8,210
|
-
|
8,210
|
||||||||
|
Pennsylvania
|
158,216
|
66,353
|
224,569
|
||||||||
|
Texas
|
868,080
|
74,920
|
943,000
|
||||||||
|
Deferred
inventory (see note 4 of the financial statements)
|
103,615
|
-
|
103,615
|
||||||||
| $ |
1,428,833
|
$ |
1,413,550
|
$ |
2,842,383
|
||||||
“Actively
Marketed” properties are properties that are ready for immediate resale, while
properties “Being Prepared for Marketing” are properties that are not currently
ready to be sold due to any number of reasons, such as, but not limited
to,
zoning issues and title issues. In regard to the properties listed above
that
are categorized as “Being Prepared for Marketing”, the property in Mexico is
awaiting final deeding from the previous owner to the Company. The deeding
process in Mexico has proven to be a slow and tedious affair, and, based
on this
particular experience, the Company will carefully evaluate any future
purchases
of property in Mexico. The Nevada property, which is also categorized
as “Being
Prepared for Marketing”, has been delayed from being actively marketed as the
Company awaits approval to subdivide the properties into smaller parcels.
The
Company has submitted is subdivision plans and is awaiting approval of
those
plans. This property was originally purchased in fiscal year 2005 and
is the
only property that the Company has not purchased for cash in full; this
property
is financed by a bank loan (see note 5 of the financial statements).
The
remaining properties that are categorized as “Being Prepared for Marketing”,
which are located in Pennsylvania and Texas, were purchased during the
period
ended June 30, 2007 and late in fiscal year 2006 and are in the process
of being
deeded to the Company.
As
previously mentioned, the Company is aggressively pursuing strategies
to
diversify its real estate holdings. The Company believes that a broad,
diversified inventory of properties may provide more buying options to
our
customer base while also attracting new customers who may not have previously
purchased property from the Company because the Company did not offer
the type
of property that these individuals were interested in buying. Also, the
Company
believes that a diversified inventory portfolio may allow it to increase
both
sales volume and net revenue while minimizing the potential to flood
a
particular market, or geographic region, with properties, and, in the
process,
depress property values and adversely impact the ability of our customers
to
resell their property at a profit.
Prepaid
expenses totaled $25,382 as of June 30, 2007, a decrease of $188,793,
or 88.1%,
from the $214,175 as of December 31, 2006. The decrease in prepaid assets
is due
entirely to the expensing of prepaid expenses related to the Company’s deferred
revenue. The Company follows FASB 66 - Accounting for Sales of Real Estate
(see
note 1 of the financial statements), and due to the Company’s 60-day refund
policy, all sales transactions, and their related direct expenses, are
not
recognized until after the expiration of the buyer’s 60-day rescission period.
Due to the significant decrease in property sales (see revenue discussion
above
and note 4 of the financial statements), the Company has expensed, as of
June 30, 2007, all of the direct costs, except land costs, associated
with its
deferred revenue. This was done because deferred revenue as of June 30,
2007,
which was $168,035, represented approximately 2.2% of total revenue booked
by
the Company since its inception in 2005; meaning that approximately 97.8%
of all
booked revenue has been recognized as of June 30, 2007. Therefore, given
that
approximately 98% of total revenues from inception have been recognized
as of
June 30, 2007, and that the remaining capitalized direct costs, excluding
land
costs, were nominal and not material, the Company elected to expense
the
remaining direct costs (merchant fees, processing fees, royalties to
a related
party, and sales commissions) as of June 30, 2007. These prepaid direct
costs
totaled $196,095 as of December 31, 2006. Prepaid accounting/audit fees
are to
be expensed over the twelve (12) month period beginning January 2007,
while
prepaid rent represents both the July 2007 rent payment and the last
monthly
rent payment on the Company’s office in Alameda, California. Prepaid insurance
relates to both the Company’s general liability and directors & officers
insurance policies and are expensed over the one-year term of the policies.
The
following table details prepaid expenses as of June 30, 2007:
|
Prepaid
expenses as of June 30, 2007
|
|||
|
Audit
fees
|
$ |
15,000
|
|
|
Rent
|
4,663
|
||
|
Insurance
|
5,719
|
||
| $ |
25,382
|
||
Property
and equipment totaled $12,129, net of accumulated depreciation, as of
June 30,
2007 and consisted of computers and related computer hardware. These
assets were
purchased for use in the Company’s Alameda office and were put into service in
February 2007. These assets were recorded at their cost of $20,789, which
included the purchase price, tax, and freight. The Company is expensing
these
assets over a twelve (12) month period beginning February 2007, with
the monthly
depreciation totaling $1,732. During the six month period ended June
30, 2007,
the Company recorded depreciation expense of $8,660, with one-half of
that
amount allocated to an affiliate who shares the Alameda office with the
Company.
For the six months ended June 30, 2007, the Company’s net depreciation expense
was $4,330.
Current
liabilities totaled $3,434,193 as of June 30, 2007, a decrease of $534,167
from
the $3,968,360 as of December 31, 2006. The following table details current
liabilities as of June 30, 2007:
|
Current
liabilities as of June 30, 2007
|
|||
|
Accounts
payable
|
$ |
122,250
|
|
|
Due
to related parties - principal
|
2,692,694
|
||
|
Due
to related parties - accrued interest
|
254,900
|
||
|
Accrued
expenses
|
96,945
|
||
|
Accrued
payroll
|
58,173
|
||
|
Loan
payable - current portion
|
41,196
|
||
|
Deferred
income
|
168,035
|
||
| $ |
3,434,193
|
||
Accounts
payable consist of normal expenses incurred during the course of business,
and
the Company’s payables are current with regard to vendor terms. As of June 30,
2007, accounts payable totaled $122,250, with three vendors accounting
for
$110,871 of the total. In regard to those three vendors, $80,631 was
owed to the
Company’s outside attorneys and $30,240 was owed to two (2) different property
owners associations in relation to annual dues on properties owned by
the
Company. The Company owed related parties $2,947,594 as of June 30, 2007,
with
$2,692,694 consisting of principal owed and the remaining $254,900 relating
to
accrued, unpaid interest. Accrued expenses totaled $96,945 as of June
30, 2007
and consisted of (1) an accrued payment of $50,000 relating to a proposed
settlement (see note 15 of the financial statements) of two lawsuits
filed by
the Company in relation to its property holdings in Pershing County,
Nevada (see
note 5 of the financial statements), (2) accrued legal fees of $25,000,
(3)
accrued consultant fees of $13,600, (4) accrued audit fees of $7,500,
and (5)
accrued insurance expenses totaling $845. Accrued payroll totaled $58,173
as of
June 30, 2007 and consisted of two (2) weeks of accrued salary and accrued,
unpaid vacation pay. Deferred revenue totaled $168,035 as of June 30,
2007 and
relates to sales that have occurred as of June 30, 2007, but whose revenue
has
not been recognized as of June 30, 2007 in compliance with FASB 66 -
Accounting
for Sales of Real Estate (see note 1 of the financial statements).
The
$534,167 decrease in current liabilities as of June 30, 2007 as compared
to
December 31, 2006 is the result of the following:
|
Accounts
payable
|
$ | (40,925 | ) | |
|
Due
to related parties – principal
|
293,529
|
|||
|
Due
to related parties – accrued interest
|
13,190
|
|||
|
Accrued
expenses
|
(182,055 | ) | ||
|
Accrued
payroll
|
6,725
|
|||
|
Loan
payable – current portion
|
2,001
|
|||
|
Deferred
revenue
|
(626,632 | ) | ||
|
Total
decrease
|
$ | (534,167 | ) |
The
$626,632 reduction in deferred revenue is due to the decrease in property
sales
during May and June 2007 (see revenue discussion above and note 4 of the
financial statements). The $182,055 reduction in accrued expenses is the
result
of the Company paying, in full, (1) the final $155,000, in cash, owed to
Piping
Partners (see note 13 of the financial statements), and (2) the final $84,000,
via the issuance of 93,333 shares of the Company’s common stock (see note 10 of
the financial statements), owed to Aurelius Consulting Group (see note
13 of the
financial statements). The payments to Piping Partners and Aurelius Consulting
Group were partially offset by the $50,000 liability that the Company accrued
as
of June 30, 2007 (see note 15 of the financial statements). The $40,925
reduction in accounts payable was the result of the Company paying its
vendors
within the specified credit terms, and the $306,719 (principal and interest)
increase in the amount owed to related parties represents borrowings made
by the
Company to fund its operations.
As
of
June 30, 2007, the Company owed $493,771 to a third party who financed
the
Company’s purchase of properties in Pershing County, Nevada, of which $41,196
is
classified as a current liability and $452,575 as a long-term liability.
The
properties were purchased in August 2005, and the amount owed as of December
31,
2006 was $512,881. The Company is required to make monthly payments of
principal
and interest, with total principal payments of $19,110 and interest payments
of
$24,919 having been made by the Company during the six month period ended
June
30, 2007. As of June 30, 2007, the Company was current with payments
due on this
loan.
Shareholders’
deficit was $1,004,023 as of June 30, 2007 and is summarized in the
table shown
below. The Company had 9,928,664 shares of its common stock issued
and
outstanding as of June 30, 2007, of which 8,200,002 shares are owned
by three
individuals affiliated with the Company. The Company is authorized
to issue
100,000,000 shares of its common stock, par value $0.0001 per share,
which means
90,071,336 shares were unissued as of June 30, 2007. Additional paid-in
capital
increased by $109,679 as of June 30, 2007 due to (1) the issuance of
93,333
shares for services valued at $84,000 (see note 10 of the financial
statements),
and (2) the amortization of options granted to officers and directors
of the
Company (see note 14 of the financial statements). The Company’s net loss of
$397,615 during the six month period ended June 30, 2007 increased
the Company’s
accumulated deficit to $1,514,312.
|
Summary
of Shareholders' Deficit as of June 30, 2007
|
||||||||||||||||||||
|
Common
Shares
|
Common
Par
|
Additional
Paid in Capital
|
Accumulated
Deficit
|
Shareholders'
Deficit
|
||||||||||||||||
|
Balance
as of December 31, 2006 (audited)
|
9,835,331
|
$ |
984
|
$ |
399,617
|
$ | (1,116,697 | ) | $ | (716,096 | ) | |||||||||
|
Amortization
of options granted to Directors & Officers
|
-
|
-
|
25,688
|
-
|
25,688
|
|||||||||||||||
|
Shares
issued for services
|
93,333
|
9
|
83,991
|
-
|
84,000
|
|||||||||||||||
|
Net
loss for the six month period ended June 30, 2007
|
-
|
-
|
-
|
(397,615 | ) | (397,615 | ) | |||||||||||||
|
Balance
as of June 30, 2007
|
9,928,664
|
$ |
993
|
$ |
509,296
|
$ | (1,514,312 | ) | $ | (1,004,023 | ) | |||||||||
Liquidity
and Capital Resources
To
date,
the Company has funded inventory acquisitions primarily from net revenue
received from sales of properties in inventory and from funds borrowed
from
affiliates. The Company has not incurred any debt in order to finance
its
operations, with the exception of amounts due to affiliates and mortgages
taken
out for nineteen (19) sections of land acquired in Pershing County, Nevada
in
2005 (see note 5 of the financial statements). These mortgages bear interest
at
10% per annum and mature September 1, 2015.
While
the
Company believes that it can achieve its current objectives without raising
additional capital, additional capital would allow the Company to benefit
from
economies of scale in the real estate market and to shorten the lead-time
required to acquire new properties. Additional capital would also allow
the
Company to acquire a more diversified portfolio of properties that the
Company
believes would allow it to increase both sales volume and net revenue
while
minimizing the potential to flood a particular market, or geographical
region,
with properties, and, in the process, depress property values and adversely
impact the ability of our customers to resell their property at a profit.
To the extent that our cash flow from operations is insufficient to fund
our
future activities, we may need to raise additional funds through equity
or debt
financing. There can be no assurance that such financings can be obtained
on
favorable terms, if at all.
The
Company has no material commitments for capital expenditures as the Company
lets
marketplace conditions serve as its guide in terms of acquisition exposure.
There are no significant elements of income or loss arising from anything
other
than the Company’s continuing operations.
Critical
Accounting Estimates
The
Company's consolidated financial statements are prepared in conformity
with U.S.
generally accepted accounting principles, which require the use of estimates
and
assumptions regarding certain types of assets, liabilities, revenues,
and
expenses. Management bases its estimates on historical experience and
on various
other assumptions that are believed to be reasonable under the circumstances.
The Company's estimates are based on the facts and circumstances available
at
the time; different reasonable estimates could have been used in the
current
period, and changes in the accounting estimates used are likely to occur
from
period to period, which may have a material impact on the presentation
of the
Company's financial condition and results of operations. Actual results
reported
by the Company may differ from such estimates. The Company reviews these
estimates periodically and reflects the effect of revisions in the period
that
they are determined. Note 1 of the Notes to our Consolidated Financial
Statements includes a summary of the accounting policies and methods
used in the
preparation of our consolidated accounts. Set forth below is a brief
discussion
of what the Company believes to be the more critical judgment areas in
the
application of the Company's accounting policies.
Impairment
of Inventory
The
Company's inventory consists of land parcels that are purchased for resale
purposes, and, except for special circumstances, do not normally remain
in
inventory for a prolonged period of time. The Company records its inventory
at
the lower of cost or fair market value at the relevant balance sheet
date. The
Company reviews its inventory on a quarterly basis in an attempt to (1)
identify
"problem" properties that may become impaired (difficult or impossible
to sell),
and (2) identify the financial impact, or impairment, to the recorded
cost, or
carrying value, of these properties. The Company attempts to measure
impairment
on an item-by-item basis, but due to practical limitations, the Company
also
measures impairment for a group of similar/related properties. The Company
considers properties to be similar/related if they are from the same
subdivision
and/or geographic region. For the purpose of this discussion, the term
"property" refers to a specific property or a group of similar/related
properties.
The
Company recognizes inventory impairment at the time it's incurred, which
is at
the conclusion of the aforementioned quarterly reviews. Impairment charges,
or
write-downs to the recorded value of a property, occur when the estimated
fair
market value (FMV) of a property falls below the recorded, or carrying
cost, of
the associated property. The estimated FMV of a property is based on
the
conditions that exist at the relevant balance sheet date, with consideration
being given to events after the relevant balance sheet date to the extent
that
they confirm conditions existing at or before the relevant balance sheet
date.
The Company's quarterly inventory impairment reviews require the exercise
of
judgment and take into consideration all relevant information available
to the
Company at the time the review is conducted. This periodic comparison
of
comparable information determines if the value of our properties has
become
impaired.
In
attempting to identify impaired properties, the Company begins by analyzing
recent trends in selling prices (EBay, Bid4Assets, real estate agent
listings,
and the Company's sales records) to establish the estimated FMV of a
property
and then compares the estimated FMV to the recorded value of the property
to
ensure that the estimated FMV has not fallen below the recorded value.
Should it
be determined that the estimated FMV is less than the recorded value,
the
Company records the appropriate impairment charge at that time, as it
writes
down the value of the property to it's estimated FMV, which does not
include any
profit/markup.
The
Company also reviews its properties to identify problems/issues that
may reduce
a property's value, such as, but not limited to, zoning issues, right
of way
issues, and failed perc tests. Any of these problems, and similar problems
not
previously mentioned, can have an adverse affect on the estimated FMV
of a
property and necessitate a write-down of the recorded value of said property.
Should it be determined that such "problem" properties exist, the Company
records the appropriate impairment charge at that time, as it writes
down the
value of the property to it's estimated FMV, which, as previously mentioned,
does not include any profit/markup.
The
Company's return rates (the number of similar properties sold by the
Company
that have been returned to the Company by the buyer) are also reviewed
in an
effort to gauge the favorability, or salability, of its properties. The
purpose
of this review is to attempt to determine if certain properties are (1)
not in
favor with our Customer base, (2) overpriced, (3) saturated for that
particular
market, or (4) problem properties for some reason unknown to the Company.
Should
it be determined that certain properties are experiencing abnormally
high return
rates and may be difficult to sell at an estimated FMV above their recorded
cost, the Company will record the appropriate impairment charge at that
time, as
it writes down the value of the property to its estimated FMV.
The
Company's impairment analysis is predicated on establishing an accurate
estimate
of a property's FMV. This estimate of FMV is based on the analysis of
known
trends, demands, commitments, events and uncertainties. As previously
stated,
the Company reviews all relevant information at its disposal at the time
its
impairment analysis is being performed, and uses that data to assess
what
impairment charges, if any, have been incurred. However, estimated FMV
can be
difficult to establish and is contingent on market conditions, such as,
but not
limited to, supply and demand, local and national economic factors, and
interest
rates. Any change in these market conditions, and similar conditions
not
previously mentioned, could have a material impact on estimated FMV,
and,
therefore, future inventory impairment charges incurred by the Company.
Since
there is not always a readily available source for land values, the weight
of
all measures, as described above, are considered by management in its
impairment
analysis.
Risk
Factors that May Affect Future Results and Market Price of
Stock
The
Company's operations and its securities are subject to a number of substantial
risks, including those described below. If any of these or other yet
unforeseen
risks actually occur, the Company's business, financial condition, and
operating
results, as well as the trading price or value of its securities could
be
materially adversely affected. No attempt has been made to rank these
risks in
the order of their likelihood or potential harm. In addition to those
general
risks enumerated elsewhere, any purchaser of the Company's common stock
should
also consider the following risk factors:
Risks
Related to the Company's Operations:
We
have a limited operating history and cannot guarantee
profitability.
The
Company acquired its current operations in January of 2006 through the
purchase
of Landbank LLC. Landbank, LLC itself commenced operations during the
second
quarter of 2005. At this stage, the Company has only a limited operating
history
upon which an evaluation of performance and future prospects can be made.
There
can be no assurance that the Company will be able to continue to generate
revenues in the future.
The
Company is subject to all of the business risks associated with a new
enterprise, including, but not limited to, the risk of unforeseen capital
requirements, lack of fully-developed products, failure of market acceptance,
failure to establish time proven business relationships, and a competitive
disadvantage vis-a-vis larger and more established companies.
We
may need to raise capital in the future, and if such capital is not available
on
acceptable terms, we may have to curtail or cease
operations.
The
Company's business is dependent in part on being able to acquire and
make
available a broad selection of properties. Acquisition of these properties
requires significant capital expenditure. While the Company intends to
generate
sufficient revenues in the future to fund our acquisitions, it is possible
that
we may need to raise additional capital. Consequently, we may be unable
to raise
sufficient additional capital on terms deemed acceptable. In that event, the
Company may have to curtail or cease operations and/or limit the number
of
properties maintained in inventory. This could have an adverse impact
on the
Company's ability to effectively compete with other companies, which
are able to
offer customers a broader range of properties. If additional funds are
raised
through the issuance of debt securities or preferred stock, these securities
could have rights that are senior to the holders of the common stock,
and any
debt securities could contain covenants that would restrict the Company's
operations. In addition, if the Company raises funds by selling common
stock or
convertible securities, existing stockholders could face dilution of
their
shares.
We
may be unable to identify or acquire suitable properties at a low cost,
which
could affect our ability to generate revenues.
The
Company's ability to generate revenues is highly dependent on its ability
to
maintain low acquisition costs while offering a wide range of suitable
properties. There can be no assurance that the Company's acquisition
teams will
be successful in locating suitable properties on financially attractive
terms.
Competition
for properties may increase costs and reduce returns.
The
Company competes to acquire real property with individuals and other
entities
engaged in similar activities. Many of our competitors have greater financial
resources, and thus, a greater ability to borrow funds and to acquire
properties. Competition for properties may reduce the number of suitable
acquisition opportunities available and may have the effect of increasing
acquisition costs thereby adversely impacting Company profits.
We
acquire a substantial number of our properties through the tax-lien foreclosure
process, and may therefore be subject to additional costs for eviction
and/or
clearing title.
When
acquiring properties through the tax-lien foreclosure process, the property
is
deeded to the buyer by the relevant government entity without any warranties
as
to title, and in some instances, subject to a right of the original owner
to
redeem the property within a certain number of days. In addition, the
buyer of
the property remains responsible for any eviction of a prior owner who
remains
in possession of the property. The majority of parcels that we acquire
are
unimproved lots with no owner in possession, and we attempt to perform
adequate
due diligence in connection with the purchase of each piece of property
to
ensure that there are no material liens or encumbrances affecting title
to the
property. We cannot however guarantee that we will not be required to
undertake
eviction or other proceedings in connection with properties purchased
in this
process, or that we will not encounter undisclosed encumbrances. In the
event
such a situation arises, we may incur significant additional acquisition
costs
which may adversely affect our net revenues and/or results of operations.
In
counties where there is a right of redemption, we hold the property in
inventory
until the right has lapsed. The Company does not currently acquire significant
amounts of properties in counties where such rights exist, however, if
we do,
any exercise of these rights could delay our ability to generate revenues
from
these properties.
We
may be unable to sell a property, if or when we decide to do so, which
could
delay revenues needed to fund operations.
The
real
estate market is affected by many factors, such as general economic conditions,
availability of financing, interest rates, and other factors, including
supply
and demand, that are beyond the Company's control. The Company cannot
predict
whether it will be able to sell any property for the price or on the
terms that
it sets or whether any price or other terms offered by a prospective
purchaser
would be acceptable. The Company cannot predict the length of time needed
to
find a willing purchaser and to close the sale of a property.
The
Company may be required to expend funds to correct defects or to make
improvements before a property can be sold. The Company cannot make any
assurance that it will have funds available to correct such defects or
to make
such improvements.
Our
principal stockholders have broad control over our
operations.
The
Company's principal stockholders beneficially own approximately 83% of
the
issued and outstanding share capital of the Company. As a result, these
stockholders are able to exercise significant influence over the Company,
including the election of directors, amendments to the articles of incorporation
or by-laws of the Company, the approval of mergers or other business
combinations, and the sale or purchase of material assets. The interests
of
these stockholders in deciding these matters and the factors they consider
in
making such decisions could be different from the interests of the Company's
other stockholders.
We
may lose key personnel and/or be unable to maintain current relationships
with
affiliates upon which we depend.
The
Company's success depends to a significant degree upon the continued
relationship with certain of its affiliates and the contribution of its
executive management team. If any of the Company's executives decide
to leave
the Company, we could lose access to important affiliate services and/or
acquisition or sales channels, which could adversely affect our operations
and/or financial condition.
Four
of
the Company’s original five directors have recently resigned, two of which were
replaced with independent directors. Although we believe that the Company
will
benefit from having an independent board, we cannot guarantee that
this change
in board composition will not adversely affect the Company's
operations.
We
are subject to general real estate risks.
The
Company is subject to risks generally associated with the ownership of
real
estate, including:
|
·
|
changes
in general or local economic
conditions;
|
|
·
|
changes
in supply of or demand for similar or competing properties
in the
area;
|
|
·
|
bankruptcies,
financial difficulties or lease defaults by
customers;
|
|
·
|
changes
in interest rates and availability of permanent mortgage financing
that
may render the sale of a property difficult or unattractive
or otherwise
reduce the returns to stockholders;
|
|
·
|
changes
in governmental rules, regulations, and fiscal policies, including
changes
in tax, real estate, environmental, and zoning
laws;
|
|
·
|
periods
of high interest rates and tight money
supply.
|
The
Company's operations can be negatively affected by the occurrence of
any of
these or other factors beyond the Company's control.
We
may be subject to litigation, which could divert substantial time and
money from
our business.
The
Company may be subject to claims from customers or other third parties.
If such
parties are successful, they may be able to obtain injunctive or other
equitable
relief, which could effectively diminish the Company's ability to further
acquire, subdivide, and sell properties, and could result in the award
of
substantial damages. Management may be required to devote substantial
time and
energy in defending any such claims.
Risks
Related to the Ownership of the Company's Stock:
There
is a limited market for the buying/selling of the Company's common stock.
If a
substantial and sustained market for the Company's common stock does
not
develop, the Company's stockholders may have difficulty selling, or be
unable to
sell, their shares.
The
Company's common stock is presently traded on the OTC Bulletin Board
(“OTCBB”),
and currently there is only a limited market for the Company's common
stock and
there can be no assurance that this market will be maintained or broadened.
If a
substantial and sustained market for the Company's common stock does
not
develop, the Company's stockholders may have difficulty selling, or be
unable to
sell, their shares. Accordingly, we cannot provide any assurance that
we will be
able to develop a substantial and sustained market for the Company's
common
stock.
Substantial
sales of the Company's common stock could cause the stock price to
fall.
As
of
August 13, 2007, the Company had 9,928,664 shares of common stock outstanding
of
which approximately 8,922,780 shares are considered "restricted securities"
as
that term is defined under Rule 144 promulgated under the Securities
Act of 1933
("'33 Act"). These restricted shares are eligible for sale under Rule
144 at
various times. No prediction can be made as to the affect, if any, that
the
sales of shares of common stock or the availability of such shares for
sale will
have on the market prices prevailing from time to time. Nevertheless,
the
possibility that substantial amounts of the Company's common stock may
be sold
in the public market may adversely affect prevailing market prices for
the
common stock and could impair the Company's ability to raise capital
through the
sale of its equity securities.
The
Company has a significant number of shares authorized but unissued. These
shares
may be issued without stockholder approval. Significant issuances of
stock would
dilute the percentage ownership of the Company's current stockholders
and could
likely have an adverse impact on the market price of the common
stock.
As
of
August 13, 2007, the Company had an aggregate of 90,071,336 shares of
common
stock authorized but unissued. The Company has reserved 3,000,000
shares for issuance under the Company's 2006 Stock Incentive Plan, and an
additional 10% has been reserved for issuances to consultants. All remaining
shares of common stock may be issued without any action or approval by
the
Company's stockholders. Any such shares issued would further dilute the
percentage ownership of the Company's current stockholders and would
likely have
an adverse impact on the market price of the common stock.
The
Company does not intend to pay dividends in the near
future.
The
Company's board of directors determines whether to pay dividends on the
Company's issued and outstanding shares. The declaration of dividends
will
depend upon the Company's future earnings, its capital requirements,
its
financial condition, and other relevant factors. The Company's Board
of
Directors does not intend to declare any dividends on the Company's shares
for
the foreseeable future. The Company anticipates that it will retain any
earnings
to finance the growth of its business and for general corporate
purposes.
Our
securities are currently classified as a "Penny Stock" which may limit
our
stockholders' ability to sell their securities.
The
price
of our common stock is currently below $5.00 per share, and is therefore
considered "penny stock" under Rule 3a51-1 of the '34 Act. As such, additional
sales practice requirements are imposed on broker-dealers who sell to
persons
other than established customers and "accredited investors" as defined
in Rule
501 of Regulation D as promulgated under the '33 Act. The prerequisites
required
by broker-dealers engaged in transactions involving "penny stocks" have
discouraged, or even barred, many brokerage firms from soliciting orders
for
certain low priced stocks.
With
respect to the trading of penny stocks, broker-dealers have an obligation
to
satisfy certain special sales practice requirements pursuant to Rule
15g-9 of
the '34 Act, including a requirement that they make an individualized
written
suitability determination for the purchase and receive the purchaser's
written
consent prior to the transaction.
Broker-dealers
have additional disclosure requirements as set forth in the Securities
Enforcement Act Remedies and Penny Stock Reform Act of 1990. These disclosure
requirements include the requirement for a broker-dealer, prior to a
transaction
in a penny stock, to deliver a standardized risk disclosure document
that
provides information about penny stocks and the risks of the penny stock
market.
Additionally,
broker-dealers must provide customers with current bid and offer quotations
for
penny stocks, the compensation payable to the broker-dealer and its salesperson
in the transaction, and the monthly account statements showing the market
value
of each penny stock held in a customer's account.
Accordingly,
the market liquidity of the Company's common stock and the ability of
any
present and prospective stockholder-investors to sell their securities
in the
secondary market is limited due to the above penny stock regulations
and the
associated broker-dealer requirements.
Our
Chief
Executive Officer and Chief Financial Officer (our principal executive
officer
and principal financial officer, respectively) conducted an evaluation
of the
effectiveness of our disclosure controls and procedures, as defined by
paragraph (e) of Exchange Act Rules 13a-15 or 15d-15, as of the end
of the
period covered by this quarterly report on Form 10-QSB. Based on this
evaluation, our Chief Executive Officer and our Chief Financial Officer
have
concluded that, as of the end of the period covered by this quarterly
report on
Form 10-QSB, our disclosure controls and procedures were effective.
In addition,
there was no change in our internal control over financial reporting
that
occurred during the period covered by this quarterly report on Form
10-QSB that
has materially affected, or is reasonably likely to materially affect,
our
internal control over financial reporting.
PART
II. OTHER INFORMATION
In
May
2007, a dispute arose involving the proposed sale and purchase of
certain real
property owned by Landbank, LLC to NRLL East, LLC, under a contract
dated March
6, 2007. In the Company’s view, this contract was illusory and did not obligate
NRLL East, LLC to perform its obligations under the contract. Accordingly,
in
May 2007 the Company filed a complaint in the Los Angeles Superior
Court seeking
declaratory relief and rescission of the contract on the basis of
fraud and
breach of oral contract. On May 29, 2007, NRLL East, LLC filed a
complaint in
the 6th
Judicial District Court of Nevada seeking specific performance and
breach of
contract, and recorded a lis pendens on the subject real property.
On July 9,
2007, the Company reached a proposed agreement with NRLL East, LLC
regarding
this matter. Per the terms of the proposed settlement, the Company
will pay NRLL
East, LLC a one-time cash payment of $50,000 as final resolution
to the disputed
matter (see note 15 of the financial statements). The Company recorded
the
$50,000 as a nonrecurring operating expense during the three month
period ended
June 30, 2007.
As
of
this filing, the agreement has not been finalized in writing, therefore
the
$50,000 cash payment has not been made by the Company. The pending
payment is
recorded as an accrued expense as of June 30, 2007 (see note 9 of
the financial
statements).
Except
as
set forth below, there were no unregistered, or any other, sales of
equity
securities by the Company during the six month period ended June 30,
2007.
On
April
4, 2007 the Company issued 93,333 unregistered shares of its common
stock, par
value $0.0001 per share, to Aurelius Consulting Group/Red Chip Companies
as full
and final payment for services valued at $84,000 (see note 10 of the
financial
statements). The shares issued were restricted securities (as such
term is
defined under Rule 144 under the ’33 Act), and the share certificates
representing such shares bear on their face the appropriate securities
legend.
On
March
13, 2007, the Company granted to its Chief Financial Officer an option
to
purchase 100,000 shares of its common stock at an exercise price of
$0.02 per
share. The option vests over a four (4) year period, with 25 % of the
shares
vesting on March 12, 2008 and the remaining shares vesting at 1/48th
per month
thereafter until the option is vested and exercisable with respect
to 100% of
the shares. The term of the option is ten (10) years, with an expiration
date of
March 12, 2017. The exercise price of the option was the fair market
value of
the Company’s common stock on the date of grant. This grant was made pursuant to
the securities exemption available under Section 4(2) of the 1933
Act.
The
Company's board of directors determines whether to pay dividends on
the
Company's issued and outstanding shares. The declaration of dividends
will
depend upon the Company's future earnings, its capital requirements,
its
financial condition, and other relevant factors. The Company's Board
of
Directors does not intend to declare any dividends on the Company's
shares for
the foreseeable future. The Company anticipates that it will retain
any earnings
to finance the growth of its business and for general corporate
purposes.
31
None.
None.
None.
Exhibits
|
No.
|
|
Description
|
|
|
|
|
|
31.1
|
|
Certification
of Principal Executive Officers Pursuant to Section 302 of
the
Sarbanes-Oxley Act of 2002.
|
|
|
|
|
|
31.2
|
|
Certification
of Principal Financial Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
|
|
|
|
|
|
32.1
|
|
Certification
of Principal Executive Officers Pursuant to Section 906 of
the
Sarbanes-Oxley Act of 2002.
|
|
|
|
|
|
32.2
|
|
Certification
of Principal Financial Officers Pursuant to Section 906 of
the
Sarbanes-Oxley Act of 2002.
|
In
accordance with the requirements of the Exchange Act, the registrant
caused this
report to be signed on its behalf by the undersigned, there unto duly
authorized.
|
|
|
|
|
|
|
|
|
|
|
|
|
Date:August
14, 2007
|
By:
|
/s/
Doug
Gravink
|
|
|
Doug
Gravink
Chief
Executive Officer
|
|
|
|
|
|
|
Date: August
14, 2007
|
By:
|
/s/
Gary
Hewitt
|
|
|
Gary
Hewitt
President
|
|
33
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
DC 20549
FORM
10-QSB
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES
EXCHANGE ACT OF 1934
For
the period ended September 30, 2007
Commission
file number: 000-52315
LANDBANK
GROUP, INC
(Exact
Name of Registrant as specified in its charter)
|
Delaware
|
20-1915083
|
|
(State
of incorporation)
|
(IRS
Employer Identification No.)
|
|
7030
Hayvenhurst Avenue, Van Nuys,
CA
|
91406
|
|
(Address
of principal executive offices)
|
(Zip
Code)
|
(818)
464-1614
(Registrant's
telephone number, including area code)
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 o
Indicate
by check mark whether the registrant is a shell company (as defined
in Rule
12b-2 of the Exchange Act). Yes o No
x
State
the
number of shares outstanding of each of the issuer's classes of common
equity:
9,928,664 shares of Common Stock ($.0001 par value) as of November
1,
2007.
Transitional
Small Business Disclosure Format (Check one): Yes o No x
|
TABLE
OF
CONTENTS
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
PART
I Financial Information
|
|
|
|
|
|
|
|
Item
1
|
3
|
|
|
|
3
|
|
|
|
4
|
|
|
|
5
|
|
|
|
6
|
|
|
|
|
|
|
Item
2
|
17
|
|
|
Item
3
|
32
|
|
|
|
|
|
|
PART
II Other Information
|
|
|
|
|
|
|
|
Item
1
|
33
|
|
|
Item
2
|
33
|
|
|
Item
3
|
33
|
|
|
Item
4
|
33
|
|
|
Item
5
|
33
|
|
|
Item
6
|
34
|
|
|
|
||
PART
I FINANCIAL INFORMATION
|
Landbank
Group, Inc. and
Subsidiary
|
|
Consolidated
Balance Sheet
|
|
As
of September 30, 2007
|
|
(Unaudited)
|
|
ASSETS
|
||||
|
Current
assets
|
||||
|
Cash
& cash equivalents
|
$ |
3,618
|
||
|
Inventory
- land parcels
|
2,854,874
|
|||
|
Prepaid
expenses
|
40,292
|
|||
|
Total
current assets
|
2,898,784
|
|||
|
Property
& Equipment, net
|
6,933
|
|||
|
Total
assets
|
$ |
2,905,717
|
||
|
LIABILITIES
AND SHAREHOLDERS' DEFICIT
|
||||
|
Current
liabilities
|
||||
|
Accounts
payable & Accrued Expenses
|
$ |
368,379
|
||
|
Due
to related parties
|
3,110,031
|
|||
|
Loan
payable - current portion
|
40,367
|
|||
|
Deferred
revenue
|
300,633
|
|||
|
Total
current liabilities
|
3,819,410
|
|||
|
Loan
payable - non-current portion
|
421,938
|
|||
|
Shareholders'
deficit
|
||||
|
Common
stock, 100,000,000 shares authorized; $0.0001
|
||||
|
par
value; 9,928,664 issued and outstanding
|
993
|
|||
|
Additional
paid in capital
|
513,244
|
|||
|
Accumulated
deficit
|
(1,849,868 | ) | ||
|
Total
shareholders' deficit
|
(1,335,631 | ) | ||
|
Total
liabilities and shareholders' deficit
|
$ |
2,905,717
|
||
The
accompanying notes are an integral part of these consolidated audited
financial
statements.
|
Landbank
Group Inc. and Subsidiary
|
||||||||||||||||
|
Consolidated
Statements of Operations
|
||||||||||||||||
|
For
the Three and Nine Month Periods Ended September 30, 2007
and
2006
|
||||||||||||||||
|
(Unaudited)
|
||||||||||||||||
|
Three
Months ended September 30,
|
Nine
Months ended September 30,
|
|||||||||||||||
|
2007
|
2006
|
2007
|
2006
|
|||||||||||||
|
Revenue,
net
|
$ |
190,204
|
$ |
1,106,897
|
$ |
1,742,501
|
$ |
3,333,980
|
||||||||
|
Cost
of revenue
|
||||||||||||||||
|
Direct
selling expenses
|
171,935
|
594,305
|
1,143,642
|
1,924,357
|
||||||||||||
|
Royalty
to related party
|
6,394
|
179,492
|
183,969
|
485,426
|
||||||||||||
|
Total
cost of sales
|
178,329
|
773,797
|
1,327,611
|
2,409,783
|
||||||||||||
|
Gross
profit
|
11,875
|
333,100
|
414,890
|
924,197
|
||||||||||||
|
Operating
expenses:
|
||||||||||||||||
|
Rent,
related party
|
5,556
|
5,554
|
16,668
|
16,663
|
||||||||||||
|
Professional
fees, related parties
|
-
|
25,366
|
5,383
|
104,650
|
||||||||||||
|
Professional
fees
|
36,763
|
91,396
|
104,727
|
700,830
|
||||||||||||
|
Legal
fees
|
44,109
|
40,288
|
133,294
|
149,549
|
||||||||||||
|
Directors
and officers compensation
|
31,448
|
27,500
|
112,136
|
27,500
|
||||||||||||
|
Settlement
on Nevada property, nonrecurring
|
-
|
-
|
50,000
|
-
|
||||||||||||
|
General
& administrative expenses
|
172,556
|
192,734
|
563,034
|
441,532
|
||||||||||||
|
Total
operating expenses
|
290,432
|
382,838
|
985,242
|
1,440,724
|
||||||||||||
|
Loss
from operations
|
(278,557 | ) | (49,738 | ) | (570,352 | ) | (516,527 | ) | ||||||||
|
Other
expenses:
|
||||||||||||||||
|
Merger
related expenses
|
-
|
-
|
-
|
(140,000 | ) | |||||||||||
|
Interest
expense - bank
|
(12,458 | ) | (13,204 | ) | (37,377 | ) | (41,157 | ) | ||||||||
|
Interest
expense - related parties
|
(43,741 | ) | (41,454 | ) | (123,042 | ) | (90,442 | ) | ||||||||
|
Total
other expenses
|
(56,199 | ) | (54,658 | ) | (160,419 | ) | (271,599 | ) | ||||||||
|
Loss
before income taxes
|
(334,756 | ) | (104,396 | ) | (730,771 | ) | (788,126 | ) | ||||||||
|
Provision
for income taxes
|
800
|
-
|
2,400
|
-
|
||||||||||||
|
Net
loss
|
$ | (335,556 | ) | $ | (104,396 | ) | $ | (733,171 | ) | $ | (788,126 | ) | ||||
|
Basic
and diluted weighted average number
|
||||||||||||||||
|
of
common stock outstanding
|
9,928,664
|
9,833,903
|
9,896,527
|
9,557,959
|
||||||||||||
|
Basic
and diluted net loss per share
|
$ | (0.03 | ) | $ | (0.01 | ) | $ | (0.07 | ) | $ | (0.08 | ) | ||||
The
accompanying notes are an integral part of these consolidated audited
financial
statements.
|
LandBank
Group, Inc. and Subsidiary
|
||||||||
|
Consolidated
Statements of Cash Flows
|
||||||||
|
For
the Nine Month Periods Ended September 30, 2007 and
2006
|
||||||||
|
(Unaudited)
|
||||||||
|
|
||||||||
|
2007
|
2006
|
|||||||
|
Cash
flows from operating activities:
|
|
|
||||||
|
Net
loss
|
$ | (733,171 | ) | $ | (788,126 | ) | ||
|
Adjustments
to reconcile net loss to net cash
|
||||||||
|
used
in operating activities:
|
||||||||
|
Depreciation
- capital equipment
|
13,856
|
-
|
||||||
|
Amortization
of options granted to Directors & Officers
|
29,636
|
-
|
||||||
|
Shares
issued for service
|
-
|
374,667
|
||||||
|
Shares
to be issued for service
|
-
|
36,000
|
||||||
|
Changes
in current assets and liabilities:
|
||||||||
|
(Increase)
decrease in current assets
|
||||||||
|
Inventory
- land parcels
|
382,389
|
(1,009,162 | ) | |||||
|
Other
receivable
|
8,542
|
(51,781 | ) | |||||
|
Prepaid
expenses
|
173,883
|
58,597
|
||||||
|
Increase
(decrease) in current liabilities
|
||||||||
|
Accounts
payable
|
110,672
|
24,831
|
||||||
|
Accrued
expenses
|
(151,916 | ) |
138,341
|
|||||
|
Reserve
for returns
|
-
|
(26,148 | ) | |||||
|
Deferred
income
|
(494,034 | ) | (255,145 | ) | ||||
|
Total
adjustments
|
73,028
|
(709,800 | ) | |||||
|
Net
cash used in operating activities
|
(660,143 | ) | (1,497,926 | ) | ||||
|
Cash
flows from investing activities
|
||||||||
|
Capital
equipment purchases
|
(20,789 | ) |
-
|
|||||
|
Cash
flows from financial activities
|
||||||||
|
Due
to related parties
|
469,156
|
1,136,694
|
||||||
|
Repayment
of loans
|
(50,576 | ) | (50,624 | ) | ||||
|
Net
cash provided by financial activities
|
418,580
|
1,086,070
|
||||||
|
Net
change in cash and cash equivalents
|
(262,352 | ) | (411,856 | ) | ||||
|
Cash
and cash equivalents - beginning balance
|
265,970
|
631,425
|
||||||
|
Cash
and cash equivalents - ending balance
|
$ |
3,618
|
$ |
219,569
|
||||
|
Supplemental
disclosure of cash flows information:
|
||||||||
|
Taxes
paid
|
$ |
2,400
|
$ |
-
|
||||
|
Interest
paid
|
$ |
37,377
|
$ |
41,157
|
||||
|
Supplemental
disclosures of non-cash investing and financing
activities:
|
||||||||
|
Shares
issued to settle accrued expenses
|
$ |
84,000
|
$ |
-
|
||||
The
accompanying notes are an integral part of these consolidated audited
financial
statements.
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1.
Nature of business and significant accounting policies:
Nature
of business:
Landbank
Group, Inc., formerly known as iStorage Network, Inc. (“iStorage”), formerly
known as Camryn Information Services, Inc, was incorporated under the
laws of
the State of Delaware on May 13, 1997.
On
January 26, 2006, iStorage issued 8,200,002 shares of restricted stock
(post-split) in exchange for all of the assets and liabilities of Landbank,
LLC,
a company organized in the State of California in December 2004, and
$140,000 in
cash. iStorage changed its name to Landbank Group, Inc. The former
members of
Landbank, LLC became approximately 90% owners of the Company.
The
exchange of shares with Landbank, LLC was accounted for as a reverse
acquisition
under the purchase method of accounting since the stockholders of Landbank,
LLC
obtained control of the consolidated entity (collectively, “the Company”).
Accordingly, the merger of the two companies was recorded as a recapitalization
of Landbank, LLC, where as Landbank, LLC was treated as the continuing
entity.
The historical results for the nine month periods ended September 30,
2007 and
2006 include Landbank, LLC and Landbank Group, Inc.
The
Company makes bulk acquisitions of parcels of land, and resells the
land as
individual parcels. The Company seeks to acquire a majority of its
land
“in-bulk” through the real property tax lien foreclosure process, either at
local government tax sales, directly from local government entities
having
acquired property at tax sales, or directly from owners of tax-defaulted
parcels
prior to tax sale.
The
types
of real estate acquired and sold by the Company include undeveloped
acreage,
houses, and lots. These parcels are marketed nationwide. To date, the
Company
has acquired properties in Arizona, Colorado, Florida, Michigan, New
Mexico,
Nevada, Oklahoma, New York, Pennsylvania, Missouri, Texas, and in the
State of
Chihuahua, Mexico.
The
Company resells the land as individual parcels through multiple distribution
channels, including Internet sales and leads developed by the Company,
its
affiliates, or third party vendors. The Company also uses the Internet
to market
its properties.
The
Company shares its office space with its affiliates.
The
Company’s principal office is located in Van Nuys, California. The property
is
leased from a real estate company related to the Company by common
ownership
under a five-year lease that expires in 2008.
The
Company also has a satellite office in American Fork, Utah and a processing,
acquisition, and sales office in Alameda, California. The Company closed
its
sales office in Phoenix, Arizona in June 30, 2007. The Company shares
office
space at the Van Nuys, American Fork, and Alameda locations with its
affiliates.
On
October 26, 2007, Parent’s Board of Directors voted unanimously to approve the
proposed divesture of the Company’s operating subsidiary, Landbank, LLC (“the
Subsidiary”). Per the terms of the proposed transaction, Parent would divest
itself of the Subsidiary to a private company (“the Acquisition Company”) owned
100% by
former directors, officers, and principal stockholders of the Company.
In return
for receiving 100% ownership of the Subsidiary, the Subsidiary, the
Acquisition Company, and Family Products LLC (a member of
the Acquisition
Company) would indemnify Parent against any, and all, past, present,
and future
financial obligations related to the Subsidiary except for a $500,000
note
payable that Parent would owe to the Acquisition Company. In addition,
Parent
will issue 79,311,256 shares of its common stock to the Acquisition
Company,
thereby giving the Acquisition Company ownership of 95% of Parent’s issued and
outstanding shares of its common stock immediately after the successful
closing
of this transaction. In connection with these transactions, Parent’s Board of
Directors also authorized an amendment to Parent’s certificate of incorporation
to: (1) increase in the number of Parent’s authorized shares of common stock
from 100,000,000 to 2,000,000,000, and (2) change Parent’s name. On November 1,
2007, Parent entered into a Securities Exchange Agreement with the
Acquisition
Company and Family Products LLC which provides for the foregoing
transactions,
subject to customary closing conditions, including approval by the
Company’s
stockholders and the amendment of the Company’s certificate of
incorporation. At the time of this filing, the divestiture and the
amendment have not been approved by Parent’s stockholders, nor has the amendment
been filed with the State of Delaware. The Company anticipates that
this transaction, which is subject to stockholder approval, will
be finalized by
the end of 2007 or during the first quarter of 2008.
Summary
of significant accounting policies
The
following summary of significant accounting policies used in the preparation
of
these consolidated financial statements is in accordance with generally
accepted
accounting principles.
Principles
of Consolidation
The
consolidated financial statements consist of the accounts of Landbank
Group,
Inc. and its wholly owned subsidiary Landbank, LLC, a California limited
liability company. All material inter-company transactions have been
eliminated
in consolidation.
Cash
and cash equivalents
For
purposes of the statement of cash flows, cash equivalents include all
highly
liquid debt instruments with original maturities of ninety days or
less which
are not securing any corporate obligations.
Concentration
The
Company maintains its cash in bank deposit accounts, which, at times,
may exceed
federally insured limits. The Company has not experienced any losses
in such
accounts.
The
Subsidiary maintains certain cash balances with a commercial bank.
The Company’s
cash balance of $3,618, all of which belonged to the Subsidiary, as
of September
30, 2007 was within insured limits.
Inventory
The
Company’s inventory consists of land parcels that are purchased for resale
purposes, and, except for special circumstances, do not normally remain
in
inventory for a prolonged period of time. The Company records its inventory
at
the lower of cost or fair market value at the relevant balance sheet
date. The
Company reviews its inventory on a quarterly basis in an attempt to
(1) identify
“problem” properties that may become impaired (difficult or impossible to sell),
and (2) identify the financial impact, or impairment, to the recorded
cost, or
carrying value, of these properties. The Company attempts to measure
impairment
on an item-by-item basis, but due to practical limitations, the Company
also
measures impairment for a group of similar/related properties. The
Company
considers properties to be similar/related if they are from the same
subdivision
and/or geographic region. For the purpose of this discussion, the term
“property” refers to a specific property or a group of similar/related
properties.
The
Company recognizes inventory impairment at the time it’s incurred, which is at
the conclusion of the aforementioned quarterly reviews. Impairment
charges, or
write-downs to the recorded value of a property, occur when the estimated
fair
market value (FMV) of a property falls below the recorded, or carrying
cost, of
the associated property. The estimated FMV of a property is based on
the
conditions that exist at the relevant balance sheet date, with consideration
being given to events after the relevant balance sheet date to the
extent that
they confirm conditions existing at or before the relevant balance
sheet date.
The Company’s quarterly inventory impairment reviews require the exercise of
judgment and take into consideration all relevant information available
to the
Company at the time the review is conducted. This periodic comparison
of
comparable information determines if the value of our properties has
become
impaired.
In
attempting to identify impaired properties, the Company begins by analyzing
recent trends in selling prices (EBay, Bid4Assets, real estate agent
listings,
and the Company’s sales records) to establish the estimated fair market value
(FMV) of a property and then compares the estimated FMV to the recorded
value of
the property to ensure that the estimated FMV has not fallen below
the recorded
value. Should it be determined that the estimated FMV is less than
the recorded
value, the Company records the appropriate impairment charge at that
time, as it
writes down the value of the property to it’s estimated FMV, which does not
include any profit/markup.
The
Company also reviews its properties to identify problems/issues that
may reduce
a property’s value, such as, but not limited to, zoning issues, right of way
issues, and failed perc tests. Any of these problems, and similar problems
not
previously mentioned, can have an adverse affect on the estimated FMV
of a
property and necessitate a write down of the recorded value of said
property.
Should it be determined that such “problem” properties exist, the Company
records the appropriate impairment charge at that time, as it writes
down the
value of the property to it’s estimated FMV, which, as previously mentioned,
does not include any profit/markup.
The
Company’s return rates (the number of similar properties sold by the Company
that have been returned to the Company by the buyer) are also reviewed
in an
effort to gauge the favorability, or salability, of its properties.
The purpose
of this review is to attempt to determine if certain properties (1)
are not in
favor with our Customer base, (2) are over priced, (3) the particular
market for
that property is saturated, or (4) are problem properties for some
reason
unknown to the Company. Should it be determined that certain properties
are
experiencing abnormally high return rates and may be difficult to sell
at an
estimated FMV above their recorded cost, the Company will record the
appropriate
impairment charge at that time, as it writes down the value of the
property to
it’s estimated FMV.
The
Company’s impairment analysis is predicated on establishing an accurate estimate
of a property’s FMV. This estimate of FMV is based on the analysis of known
trends, demands, commitments, events and uncertainties. As previously
stated,
the Company reviews all relevant information at its disposal at the
time its
impairment analysis is being performed, and uses that data to assess
what
impairment charges, if any, have been incurred. However, estimated
FMV can be
difficult to establish and is contingent on market conditions, such
as, but not
limited to, supply and demand, local and national economic factors,
and interest
rates. Any change in these market conditions, and similar conditions
not
previously mentioned, could have a material impact on estimated FMV,
and,
therefore, future inventory impairment charges incurred by the Company.
Since
there is not always a readily available source for land values, the
weight of
all measures, as described above, are considered by management in its
impairment
analysis. As of September 30, 2007, the inventory was $2,854,874.
Income
taxes
Income
taxes are accounted for in accordance with FASB-109 - Accounting for
Income
Taxes. Deferred taxes represent the expected future tax consequences
when the
reported amounts of assets and liabilities are recovered or paid. They
arise
from differences between the financial reporting and tax bases of assets
and
liabilities and are adjusted for changes in tax laws and tax rates
when those
changes are enacted. The provision for income taxes represents the
total of
income taxes paid, or payable, for the current year, plus the change
in deferred
taxes during the year.
Use
of estimates
The
process of preparing consolidated financial statements in conformity
with
generally accepted accounting principles requires the use of estimates
and
assumptions regarding certain types of assets, liabilities, revenues,
and
expenses. Such estimates primarily relate to unsettled transactions
and events
as of the date of the financial statements. Accordingly, upon settlement,
actual
results may differ from estimated amounts.
Recognition
of revenue and expenses
The
Company follows FASB 66 - Accounting for Sales of Real Estate. Substantially
all
of the Company’s land sales are all-cash transactions. The Company also had a
small, insignificant number of financing transactions through September
30,
2007. Because the Company’s policy for the all-cash transactions is to allow the
buyer 60 days to rescind his real estate purchase, and because the
Company does
not issue the deed of trust on a financing sale until the note is paid
in full,
the deposit method of accounting is used. Under the deposit method,
revenues and
their related expenses, including inventory, are not recognized until
the end of
the buyer’s 60-day rescission period, for the all-cash sales, and at the time
the note is paid in full for the financing transaction (also see note
7).
Issuance
of shares for service
The
Company accounts for the issuance of equity instruments to acquire
goods and
services based on the fair value of the goods and services or the fair
value of
the equity instrument at the time of issuance, whichever is more reliably
measurable.
Segment
reporting
Statement
of Financial Accounting Standards No. 131 ("SFAS 131"), "Disclosure
about
Segments of an Enterprise and Related Information" requires use of
the
"management approach" model for segment reporting. The management approach
model
is based on the way a company's management organizes segments within
the company
for making operating decisions and assessing performance. Reportable
segments
are based on products and services, geography, legal structure, management
structure, or any other manner in which management disaggregates a
company. SFAS
131 has no effect on the Company's financial statements as substantially
all of
the Company's operations are conducted in one industry segment.
Recent
pronouncements
In
September 2006, FASB issued SFAS 157 ‘Fair Value Measurements’. This
Statement defines fair value, establishes a framework for measuring
fair value
in generally accepted accounting principles (“GAAP”), and expands disclosures
about fair value measurements. This Statement applies under other accounting
pronouncements that require or permit fair value measurements, the
Board having
previously concluded in those accounting pronouncements that fair value
is the
relevant measurement attribute. Accordingly, this Statement does not
require any
new fair value measurements. However, for some entities, the
application of this Statement will change current practice. This
Statement is effective for financial statements issued for fiscal years
beginning after November 15, 2007, and interim periods within those
fiscal
years. The management is currently evaluating the effect of this pronouncement
on the consolidated financial statements.
In
September 2006, FASB issued SFAS 158 ‘Employers’ Accounting for Defined Benefit
Pension and Other Postretirement Plans—an amendment of FASB Statements No. 87,
88, 106, and 132(R)’ This Statement improves financial reporting by requiring an
employer to recognize the over funded or under funded status of a defined
benefit postretirement plan (other than a multiemployer plan) as an
asset or
liability in its statement of financial position and to recognize changes
in
that funded status in the year in which the changes occur through comprehensive
income of a business entity or changes in unrestricted net assets of
a
not-for-profit organization. This Statement also improves financial
reporting by
requiring an employer to measure the funded status of a plan as of
the date of
its year-end statement of financial position, with limited exceptions.
An
employer with publicly traded equity securities is required to initially
recognize the funded status of a defined benefit postretirement plan
and to
provide the required disclosures as of the end of the fiscal year ending
after
December 15, 2006. An employer without publicly traded equity securities
is
required to recognize the funded status of a defined benefit postretirement
plan
and to provide the required disclosures as of the end of the fiscal
year ending
after June 15, 2007. However, an employer without publicly traded equity
securities is required to disclose the following information in the
notes to
financial statements for a fiscal year ending after December 15, 2006,
but
before June 16, 2007, unless it has applied the recognition provisions
of this
Statement in preparing those financial statements:
1. A
brief description of the provisions of this Statement
2. The
date that adoption is required
3. The
date the employer plans to adopt the recognition provisions of this
Statement,
if earlier.
The
requirement to measure plan assets and benefit obligations as of the
date of the
employer’s fiscal year-end statement of financial position is effective for
fiscal years ending after December 15, 2008. The management is currently
evaluating the effect of this pronouncement on the consolidated financial
statements.
In
February 2007, FASB issued FASB Statement No. 159, The Fair Value Option
for
Financial Assets and Financial Liabilities. FAS 159 is effective for
fiscal
years beginning after November 15, 2007. Early adoption is permitted
subject to
specific requirements outlined in the new Statement. Therefore, calendar-year
companies may be able to adopt FAS 159 for their first quarter 2007
financial
statements.
The
new
Statement allows entities to choose, at specified election dates, to
measure
eligible financial assets and liabilities at fair value that are not
otherwise
required to be measured at fair value. If a company elects the fair
value option
for an eligible item, changes in that item's fair value in subsequent
reporting
periods must be recognized in current earnings. FAS 159 also establishes
presentation and disclosure requirements designed to draw comparison
between
entities that elect different measurement attributes for similar assets
and
liabilities.
2.
Acquisition of Landbank, LLC
On
January 26, 2006, Landbank Group, Inc. acquired all of the membership
interests
in Landbank, LLC in exchange for the transfer, by certain members of
the
previous management, of an aggregate of 8,200,002 shares of Landbank
Group,
Inc.’s stock (post-split), in exchange for which such members of previous
management received Landbank Group, Inc.’s former wholly-owned subsidiary,
iStorage Networks Group, Inc., and $140,000 in cash.
3.
Prepaid Expenses
The
Subsidiary had prepaid expenses totaling $40,292 as of September
30,
2007, which consisted of rent, insurance, legal retainers and prepaid
royalties to an affiliated company (see note 10). Prepaid rent represents
both
the last monthly rent payment due on the Subsidiary’s office in Alameda,
California as well as the October 2007 rent. Prepaid insurance relates
to both
the Subsidiary’s general liability insurance policy and the Company’s directors
& officers insurance policy, both of which are expensed over the one-year
term of the policies. The Subsidiary pays for both the Company’s directors &
officers insurance policy and its audit/review fees and allocates
these expenses
back the Company.
The
following table details the Subsidiary’s prepaid expenses as of September 30,
2007:
|
|
As
of 9/30/07
|
||
|
Rent
|
$ |
4,663
|
|
|
Insurance
|
5,495
|
||
|
Legal
retainers
|
8,150
|
||
|
Prepaid
royalties
|
14,484
|
||
|
Other
|
7,500
|
||
|
|
$ |
40,292
|
|
4.
Property & Equipment
As
of
September 30, 2007, the Subsidiary had net property and equipment
totaling
$6,933, which consisted of computers and related computer hardware.
These assets
were purchased for use in the Subsidiary’s Alameda office and were put into
service in February 2007. These assets were recorded at their cost
of $20,789,
which included the purchase price, tax, and freight. The Subsidiary
is expensing
these assets over a twelve (12) month period beginning February 2007,
with the
monthly depreciation totaling $1,732. During the nine month period
ended
September 30, 2007, the Subsidiary recorded depreciation expense
of $13,856,
with one-half of that amount allocated to an affiliate who shares
the Alameda
office with the Subsidiary. For the nine months ended September 30,
2007, the
Subsidiary’s net depreciation expense was $6,928.
5.
Accounts Payable & Accrued Expenses
The
Subsidiary had accounts payable, which consist of normal expenses
incurred
during the course of business, totaling $273,847 as of September
30, 2007, with
seven vendors accounting for $224,729 of the total. In regard to
those seven
vendors, $108,757 was owed to the Subsidiary’s outside attorneys, $95,972 was
owed to three property owners associations and one county tax agency,
and
$20,000 was owed to an independent third-party consulting company
(see note
11).
The
Subsidiary had accrued expenses totaling $94,532 as of September 30,
2007, which
consisted of the following:
|
Accrued
payroll
|
$ |
54,496
|
|
|
Accrued
legal & professional fees
|
31,350
|
||
|
Accrued
quarterly review fees
|
7,500
|
||
|
Accrued
insurance
|
1,186
|
||
|
Total
|
$ |
94,532
|
6.
Due to/from related parties
The Subsidiary
has amounts due to various related parties that are former directors
and
companies related through common ownership. These amounts are unsecured,
have no
stated rates of interest, and have no maturity dates. Interest expense
has been
imputed on amounts due to related companies using a per annum rate
of eight
percent (8%). As of September 30, 2007, the Subsidiary had $3,110,031
due to
related parties. Interest expense to related parties for the nine month
periods
ended September 30, 2007 and 2006 was $123,042 and $90,442,
respectively.
On
September 20, 2007, John Beck’s Amazing Profits, LLC (“JBAP”), Mentoring of
America, LLC (“MOA”), HG, Inc. (“HGI”), HG Marketing, LLC (“HGM”), and Family
Products, LLC (“FP”), entered into a Contribution Agreement (“Contribution
Agreement”) with Landbank Acquisition, LLC, a private entity owned 100% by
former
directors, officers, and principal stockholders of the Company. Pursuant
to the terms of the Contribution Agreement, JBAP, MOA, HGI, HGM,
and FP assigned
their respective interests in the notes payable due to them from
Landbank, LLC
to Landbank Acquisition, LLC in return for membership interests in
Landbank
Acquisition, LLC. At the time of assignment, these notes totaled
$3,032,657.47
and consisted of the principal and interest owed to the affiliates
as of August
31, 2007. The assigned notes accrue interest at the rate of 8% per
annum, are
payable on demand, and had a total amount owed of $3,052,943 as of
September 30,
2007 (see table below). As of September 30, 2007, Landbank Acquisition,
LLC
owned 55% of the Company’s issued and outstanding shares of common
stock.
The
following table details the amounts owed to affiliates:
|
Principal
|
Interest
|
Total
|
|||||||||
|
Landbank
Acquisition, LLC (formerly owed to JBAP)
|
$ |
534,424
|
$ |
-
|
$ |
534,424
|
|||||
|
Landbank
Acquisition, LLC (formerly owed to MOA)
|
47,900
|
9,623
|
57,523
|
||||||||
|
Landbank
Acquisition, LLC (formerly owed to HGI)
|
1,789,372
|
195,989
|
1,985,361
|
||||||||
|
Landbank
Acquisition, LLC (formerly owed to HGM)
|
382,606
|
90,636
|
473,242
|
||||||||
|
Landbank
Acquisition, LLC (formerly owed to FP)
|
-
|
2,393
|
2,393
|
||||||||
|
Joyce
Beck
|
32,400
|
-
|
32,400
|
||||||||
|
Gaytan,
Baumblatt, Leevan
|
24,688
|
-
|
24,688
|
||||||||
| $ |
2,811,390
|
$ |
298,641
|
$ |
3,110,031
|
||||||
Gaytan,
Baumblatt, & Leevan is an accounting firm owned by Ray Gaytan, a Director of
the Company (see note 10). Joyce Beck is the wife of John Beck, a former
Director of the Company, and the funds owed to her by the Subsidiary
were for
the reimbursement of expenses incurred by Mrs. Beck on behalf of the
Subsidiary.
7.
Deferred revenue under the deposit method
The
Subsidiary, follows FASB 66 - Accounting for Sales of Real Estate (see
note 1),
and due to the Subsidiary‘s 60-day refund policy, all sales transactions, and
their related direct expenses, are not recognized until after the expiration
of
the buyer’s 60-day rescission period. As of September 30, 2007, the Subsidiary‘s
deferred revenue totaled $300,633 with related direct costs totaling
$209,225,
of which $194,741 was land costs and $14,484 was prepaid royalties
to a related
party (see note 10).
8.
Loans Payable
In
August
2005, the Subsidiary, purchased certain sections of land in Pershing
County, Nevada subject to loans from Western Title Company. Each of
the 18
sections of land secures their respective loan. The loans bear interest
at 10%
per annum and mature September 1, 2015, unless the corresponding real
estate is
sold sooner, in which case, the loan must be repaid.
During
the nine month period ended September 30, 2007, the Subsidiary made
total
principal payments of $50,576 and interest payments of $37,377. In
September
2007, the Subsidiary repaid $21,480 as payment in full for one of the
18 loans
that was outstanding as of June 30, 2007. The payment was made so the
Subsidiary
could begin selling the property that was securing that particular
loan.
The
scheduled principal payments on these notes are as follows:
|
Years
ended
|
|
||
|
September
30,
|
|
||
|
|
|
||
|
2008
|
$ |
40,367
|
|
|
2009
|
44,594
|
||
|
2010
|
49,263
|
||
|
2011
|
54,422
|
||
|
2012
|
60,120
|
||
|
Thereafter
|
213,539
|
||
|
|
|||
|
Total
|
462,305
|
||
|
Current
portion
|
40,367
|
||
|
|
|||
|
Long-term
portion
|
$ |
421,938
|
|
9. Stockholders’
Deficit
Common
Stock Issued
The
Company issued 93,333 shares of its common stock, par value $0.0001
per share,
to Aurelius Consulting Group/Red Chip Companies (see note 11) on April
4, 2007
as payment in full for services valued at $84,000 which was recorded
as accrued
expense as of December 31, 2006. The total number of shares of the
Company’s
common stock issued and outstanding immediately after the issuance
of the 93,333
shares was 9,928,664.
The
Company did not issue any shares of its common stock during the three-month
period ended September 30, 2007.
10.
Related-party transactions
The
Subsidiary pays a royalty to a related company equal to 35% of gross
profit
received by the Subsidiary on each all-cash sale generated by leads
provided by
that related company. Gross profit is defined as land sale revenue
reduced by
inventory cost, sales commissions, credit card merchant fees, and
deed of trust
transfer costs. The related company is Landbank Acquisition, LLC,
a private
entity owned 100% by
former
directors, officers, and principal stockholders of the
Company. John Beck, a former director of the Company and
currently a principal stockholder of the Company, receives a profit
participation of 50% of the royalty payments received by one of the
related
companies, pursuant to its royalty agreement with the Subsidiary,
for his
services to that related company. During the nine month periods ended
September
30, 2007 and 2006, the Subsidiary recorded royalty expense to related
parties of
$183,969 and $485,426, respectively.
On
September 12, 2007, the Company terminated its agreement with Investment
Capital
Researchers, Inc. (“ICR”), a Company owned by Stephen Weber, a former member of
the Company’s Board of Directors. Pursuant to the termination agreement, ICR
will keep the 200,000 shares (post-split) of the Company’s common stock that it
was issued on June 30, 2006 but will not be entitled to any future
compensation
of any nature. In return, the Company has relieved ICR of any future
obligations
relating to the original agreement dated August 1, 2005 and amended
on June 27,
2006. Pursuant to the original agreement, ICR received 200,000 shares
(post-split) of the Company’s common stock on June 30, 2006 and was to receive
an additional 200,000 shares of the Company’s common stock (post-split) upon the
achievement of specified milestones. All shares issued pursuant to
this
agreement were to be restricted securities. The 200,000 shares issued
on June
30, 2006 were valued at $120,000 based on fair value of the shares
at the time
of issuance. The Company expensed the entire $120,000 as non-cash consulting
fees during the six month period ended June 30, 2006,
The
Company shares its principal office in Van Nuys and its offices in
both American Fork and Alameda with related parties. The
Company does not pay rent for its Van Nuys and American Fork
facilities, but, if it were required to pay rent on these facilities,
the
Company estimates the combined monthly rent value being approximately
$1,200,
which the Company deems as not material. The related parties are companies
owned
and controlled by Doug Gravink and Gary Hewitt, both of whom are former
directors and officers of the company and former principal stockholders
of the
Company. The Company's office in Phoenix, Arizona is subleased from
a related
company that is also owned by Doug Gravink and Gary Hewitt. Under the
terms of
the sublease arrangement, the Company pays a pro rata share of the
rent paid by
the related company, based upon the portion of the space occupied by
the
Company. During the nine month periods ended September 30, 2007 and
2006, the
Subsidiary recorded related party rent expense totaling $16,668 and
$16,663,
respectively.
On
December 22, 2006, the Subsidiary entered into a lease for approximately
1,200 square feet of office space in Alameda, California. The lease
is for a
term of twenty-five (25) months, commencing January 1, 2007. Per the
terms of
the lease, the first month is rent-free, with a base rent of $2,295
per month
for months two (2) through twelve (12) and $2,366 per month for months
thirteen
(13) through twenty-five (25). The Subsidiary is also responsible for
paying its
pro-rated share of certain expenses, such as property taxes. The monthly
rent
and related expenses for the Alameda office are to be allocated to
both the
Subsidiary and its affiliate, Mentoring of America, LLC (“MAC”), with each
company paying 50% of the expenses associated with maintaining this
office.
The
following table details the Subsidiary’s rent expense commitments per the terms
of the applicable lease agreements. The Subsidiary’s lease for its Arizona
office expires in January 2008, while the lease for its Alameda office
expires
in January 2009. These two leases represent the only office leases
currently
entered into by the Subsidiary.
|
|
2007
|
2008
|
2009
|
||||||||
|
Arizona
Office
|
$ |
22,224
|
$ |
1,852
|
$ |
-
|
|||||
|
|
|||||||||||
|
Alameda
Office
|
12,623
|
14,196
|
1,183
|
||||||||
|
|
|||||||||||
|
Total
|
$ |
34,847
|
$ |
16,048
|
$ |
1,183
|
|||||
A
director of the Company has, through his accounting firm, provided
accounting
service to the Subsidiary. The Subsidiary recorded related party accounting
expense totaling $5,383 during the nine month period ended September
30, 2007.
The Subsidiary incurred $104,650 in related party accounting expense
during the
same period in fiscal year 2006.
11.
Commitments
Consulting
Agreement with Independent Third Parties
On
September 12, 2007, the Company terminated its agreement with two (2)
independent consultants (“the consultants”), with the termination agreement
allowing the consultants to keep all cash compensation received from
the Company
as well as the 400,000 shares (post-split) of the Company’s common stock that
was issued to them in June 2006. Per the terms of the original agreement,
the
Company paid the consultants $180,000 cash, payable in nine (9) monthly
installments of $20,000 each, commencing on September 1, 2005. On May
10, 2006,
the parties amended the original agreement to include compensation
for any funds
directly raised by the consultants. Under terms of the amended agreement,
the
consultants were to receive 800,000 shares of the Company’s common stock
(post-split), par value $0.0001, with 400,000 shares to be issued on
June 30,
2006 and the remaining 400,000 shares issued upon the achievement of
specified
milestones. On June 30, 2006, the Company issued 400,000 shares (post-split)
of
its common stock to the consultants, valuing these shares at $240,000
based on
fair value of the shares at the time of issuance. The Company expensed
the
entire $240,000 as professional fees during the six months ended June
30, 2006.
In return, the consultants (1) assisted the Company in locating a
publicly-traded shell company and negotiating its merger with Landbank
Group,
LLC and (2) agreed to assist the Company in its capital raise. Upon
termination
of this agreement, all obligations of each party have been
extinguished.
Agreement
with Gemini Valuation Services, LLC
On
September 25, 2007, the Company signed an engagement letter with
Gemini
Valuation Services, LLC (“Gemini”), an independent third-party, to provide a
fairness opinion related to the Company’s proposed plan to sell the Subsidiary
to a private entity owned 100% by
former
directors, officers, and principal stockholders of the Company. Per the
terms of the engagement letter, Gemini would review all aspects
of both the
Company’s and Subsidiary’s financial activities and business model, as well as
the proposed transaction, and provide the Company with its opinion
regarding the
fairness of the proposed transaction. In consideration for their
services,
Gemini would be paid $40,000 cash, with $20,000 having been paid
by the
Subsidiary in September 2007 and the remaining $20,000 due upon
completion of
Gemini’s fairness opinion. The Subsidiary recorded the entire $40,000
expense as
professional fees during the three-month period ended September
30, 2007. The
unpaid balance of $20,000 is included in the Subsidiary’s accounts payable
balance as of September 30, 2007.
12.
Options Granted to Directors and Officers
On
August
10, 2007, the Company terminated all of its option grants, which consisted
of
grants to four (4) of the Company’s five (5) Board members and its Chief
Financial Officer. At the time of termination, none of the options
had been
exercised and the Company had recorded $55,570 as compensation expense
relating
to these options, of which $25,934 was recorded in fiscal year 2006
and the
remaining $29,636 during the nine months ended September 30, 2007.
Upon the
termination of these options, the Company (1) will no longer be recording
any
compensation expense relating to these options, and (2) has no other
option
and/or warrants of any kind outstanding.
The
following information pertains to the above-mentioned options that
were
terminated on August 10, 2007:
On
November 2, 2006, the Board of Directors adopted, by written consent,
the 2006
Stock Incentive Plan (“the Plan”). On November 9, 2006, the adoption of the Plan
was approved and ratified by written consent signed by the holders
of a majority
of the Company’s stock. Per the terms of the Plan, the Company is authorized to
reserve 3,000,000 shares of the Company’s authorized and unissued shares of
common stock for issuance pursuant to the Plan.
On
March
13, 2007, the Company granted an option to its Chief Financial Officer
(“CFO”)
to purchase 100,000 shares of the Company’s common stock at an exercise price of
$0.02 per share. The option vests over a four (4) year period, with
25 % vesting
of the shares vesting on March 12, 2008 and the remaining shares vesting
at
1/48th
per
month thereafter until the option is vested and exercisable with respect
to 100%
of the shares. The term of the option is ten (10) years, with an expiration
date
of March 12, 2017. The option grant was valued at $2,000 as of the
date of grant
using the Black-Sholes option pricing model in accordance with FAS
123R using
the following assumptions: volatility of 646.99%, Wall Street Journal
prime
interest rate of 8.25%, zero dividend yield, and an expected life of
four (4)
years. The Company expensed the entire $2,000 value of the option during
the
three month period ended March 31, 2007.
On
December 28, 2006, the Company granted options to two of its Directors,
one of
whom is the Company’s Chief Executive Officer and the other the President, in
consideration of their service as Directors of the company. Each Director
was
granted an option to purchase 100,000 shares of common stock at an
exercise
price of $0.12 per share, the fair value of the Company’s common stock on the
date of grant, in consideration of their service as a director of the
company.
Each option grant was valued at $11,681 as of the date of grant using
the
Black-Sholes option pricing model in accordance with FAS 123R using
the
following assumptions: volatility of 191.06%, risk free interest rate
of 4.69%,
dividend yield of zero, and expected life of five (5) years. Each of
the options
vests as follows: 50% of the shares subject to each option will vest
upon
achievement of a specified performance goal related to the Company’s stock price
and the remainder will vest on a quarterly basis thereafter at a rate
of 25% per
quarter. The options will not vest and the options will expire in the
event that
the performance goal is not achieved within the timeframe specified
by the goal.
The term of the option, and the implied service condition, is one year
from the
date of grant, so the Company began expensing the value of these options,
$1,948
per month ($974 per option), over the twelve-month term beginning in
December
2006. Accordingly, the Company recorded $11,688 in expense relating
to these
option grants during the six month period ended June 30, 2007.
On
November 9, 2006, the Company granted options to each of its two independent
directors to acquire 1,200,000 shares (600,000 shares per director)
of the
Company’s common stock pursuant to the Plan. Each option grant was valued at
$59,963 ($119,926 in the aggregate) as of the date of grant using the
Black-Sholes option pricing model in accordance with FAS 123R using
the
following assumptions: volatility of 125.95%, risk free interest rate
of 4.60%,
dividend yield of zero, and expected life of five (5) years. The options
vest as
follows: 20% of the shares subject to each option vested on December
31, 2006
and 20% of the shares subject to each option vest each year thereafter.
During
the year ended December 31, 2006, the Company recorded $23,986 of compensation
based on the fair value method under FAS 123R and is expensing the
remaining
value of the options at the rate of $2,000 per month until the entire
$119,926
has been expensed. The Company expensed $12,000 in relation to these
options
during the six month period ended June 30, 2007.
The
Company adopted SFAS No. 123-R effective November 1, 2006 using the
modified prospective method. Under this transition method, stock compensation
expense recognized in the year ended December 31, 2006 includes compensation
expense for all stock-based compensation awards granted on or after
November 1, 2006, based on the grant-date fair value estimated in
accordance with the provisions of SFAS No. 123-R.
13.
Subsequent Events
Securities
Exchange Agreement
On
November 1, 2007, Landbank Group, Inc. (”Parent”) entered into a Securities
Exchange Agreement (the “Securities Exchange Agreement”) with Landbank
Acquisition, LLC (“Acquisition Company”). Family Products, LLC, a member of
Acquisition Company, also is a party to the Securities Exchange Agreement
for
the limited purpose of providing indemnification to the Company
thereunder.
The
Securities Exchange Agreement calls for the following transactions
(the
“Transactions”) to occur at the closing: (1) Parent to transfer
ownership of Landbank LLC, its operating subsidiary (“the Subsidiary”), to
Acquisition Company (the “LLC Transfer”), (2) Parent to issue 79,311,256 new
shares to Acquisition Company to increase Acquisition Company’s current equity
holdings in Parent of approximately fifty-five percent (55%) to approximately
ninety-five percent (95%) (the “Share Issuance”), (3) Acquisition
Company to provide full indemnity to Parent for the Subsidiary’s prior
operations and liabilities, (4) the Subsidiary to assign $500,000
in debt to
Parent owed to Acquisition Company, (5) the Subsidiary to retain
approximately
$500,000 in debt owed to third parties and approximately $2.5 million
in debt
owed to Acquisition Company, and (6) Parent to retain approximately
$5,000 in
cash for Parent’s working capital.
The
consummation of the Transactions is subject to the receipt of customary
closing
conditions, including approval of the LLC Transfer by the Parent’s stockholders
and the amendment of Parent’s certificate of incorporation to change the
name of Parent and to increase the number of authorized shares of
Common Stock
from 100,000,000 to 2,000,000,000.
Acquisition
Company and Parent have also agreed to enter into a Registration Rights
Agreement between them at the closing (the “Registration Rights Agreement”)
pursuant to which the Acquisition Company will receive certain demand and
piggyback registration rights with respect to the shares received
in the Share
Issuance. The Securities Exchange Agreement may be terminated with
the written
consent of Parent and Acquisition Company. Subject to satisfaction of
such closing conditions, the Transactions are expected to close by
the end of
2007 or during the first quarter of 2008.
The
Securities Exchange Agreement and the Transactions were approved
unanimously by the Parent’s Board of Directors on October 26, 2007. In
connection with these transactions, Parent’s Board of Directors also authorized
an amendment to Parent’s certificate of incorporation to: (1) increase in the
number of Parent’s authorized shares of common stock from 100,000,000 to
2,000,000,000, and (2) change Parent’s name. At the time of this filing, the
divestiture and the amendment have not been approved by Parent’s stockholders,
nor has the amendment been filed with the State of Delaware.
The
Company’s goal is to divest itself of its money-losing Subsidiary and thereby
free itself of all financial obligations relating to the Subsidiary.
Upon
successful completion of the Transactions, the Company would have
no operating
activities, minimal on-going financial obligations except for a
$500,000 note
payable, and the freedom to pursue new business opportunities.
The Company
anticipates that this transaction will be finalized by the end
of 2007 or during
the first quarter of 2008.
14.
Going Concern
The
accompanying consolidated financial statements have been prepared
in conformity
with generally accepted accounting principles which contemplate continuation
of
the company as a going concern. However, the Company and the Subsidiary
have an
accumulated deficit of $1,849,868 as of September 30, 2007, including
a net loss
of $733,171 for the nine month period ended September 30, 2007. The
total
liabilities of both the Company and the Subsidiary exceeded their
total assets
by $1,335,631 as of September 30, 2007. In view of the matters described
above,
recoverability of a major portion of the recorded asset amounts shown
in the
accompanying consolidated balance sheet is dependent upon continued
operations
of both the Company and the Subsidiary, which in turn is dependent
upon the
Company’s and/or Subsidiary’s ability to raise additional capital, obtain
financing and succeed in its future operations. The financial statements
do not
include any adjustments relating to the recoverability and classification
of
recorded asset amounts or amounts and classification of liabilities
that might
be necessary should the Company and/or Subsidiary be unable to continue
as a
going concern.
On
October 26, 2007, Parent’s Board of Directors voted unanimously to approve the
proposed divesture of the Subsidiary. Per the terms of the proposed
transaction, Parent would divest itself of the Subsidiary to the
Acquisition
Company.
In
return for receiving 100% ownership of the Subsidiary, Subsidiary,
the
Acquisition Company and Family Products LLC (a member of the
Acquisition Company) would indemnify Parent against any, and all, past,
present, and future financial obligations related to the Subsidiary
except for a
$500,000 note payable that Parent would owe to the Subsidiary. In
addition,
Parent will issue 79,311,256 shares of its common stock to the Acquisition
Company, thereby giving the Acquisition Company ownership of 95%
of Parent’s
issued and outstanding shares of its common stock immediately after
the
successful closing of this transaction.
ITEM
2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS FOR THE THREE AND NINE
MONTHS
ENDED SEPTEMBER 30, 2007
The
following discussion of our financial condition and results of operations
should
be read in conjunction with our financial statements and the notes
to those
statements included elsewhere in this Form 10-QSB filing. In addition to
the historical financial information, the following discussion and
analysis
contains forward-looking statements that involve risks and uncertainties.
Our
actual results may differ materially from those anticipated in these
forward-looking statements as a result of certain factors, including
those set
forth under "Risk Factors" and elsewhere in this Form 10-QSB
filing.
For
the purpose of
this discussion regarding the financial condition and results of
operations for both Landbank Group, Inc. and its operating subsidiary,
Landbank,
LLC (“the Subsidiary”), it is to be assumed that the “the Company” refers to
Landbank Group, Inc. while “the Subsidiary” refers to Landbank, LLC unless
otherwise noted.
The
Company acquired Landbank, LLC and its real property operations in
January 2006.
Concurrent with this acquisition, there was also a change in management
and
principal ownership of the Company. Prior to its acquisition of Landbank,
LLC,
the Company was engaged, through its former operating subsidiary,
iStorage
Networks, Inc (iSNG), in the development of computer network storage
solutions.
From 1999 through November 2004, the Company was dormant, with no
operations. It
was only during the period from November 2004 to December 2005 that
the Company,
as iSNG, was operational. Landbank, LLC had only a limited operating
history
prior to being acquired by the Company, commencing operations in
the second
quarter of 2005 and had no operations, assets or liabilities as of
December 31,
2004.
Since
January 2006, the Company, through its operating subsidiary, Landbank,
LLC, has
been engaged solely in the business of acquiring parcels of land
in bulk,
primarily through the real property tax lien foreclosure process,
and then
reselling the land as individual parcels. The Company’s business is asset
intensive. Since the business is predicated on identifying, repackaging,
and
selling properties, long-term investment decisions do not play a
significant
role. Interest rate trends do not necessarily impact the Company’s business; as
such rates tend to produce a canceling effect in terms of both the
purchase and
the resale prices.
On
September 20, 2007, Doug Gravink and Gary Hewitt, both of whom are
former
directors and officers of the Company and principal stockholders
of the Company,
entered into a Contribution Agreement (the “Contribution Agreement”) with
Landbank Acquisition, LLC. Pursuant to the Contribution Agreement,
Gravink and
Hewitt each contributed 2,733,334 shares of the Company’s common stock to
Landbank Acquisition, LLC in exchange for membership interests in
Landbank
Acquisition, LLC. Upon completion of the contribution transaction,
Landbank
Acquisition, LLC held a total of 5,466,668 shares of the Company’s common stock
directly, or approximately 55.1% of the Company’s issued and outstanding
shares. Gravink and Hewitt each hold a 50% beneficial ownership
interest in Landbank Acquisition, LLC through their direct holdings
and indirect
ownership of their affiliated entities, which are also members of
Landbank
Acquisition, LLC. Gravink served as our Chief Executive Officer and
Hewitt
served as our President and Secretary until they each resigned on
September 24,
2007.
On
September 24, 2007, the Company appointed Eric Stoppenhagen as Interim
President
and Secretary of the Company to fill the vacancies created upon the
resignations
of Gravink and Hewitt. Additionally, Mr. Stoppenhagen was also
appointed Interim Chief Financial Officer of the Company effective
November 15,
2007 in light of the current Chief Financial Officer’s resignation, which is
effective November 15, 2007. On September 27, 2007, the Company entered
into a
Consulting Agreement with Venor, Inc. (“Venor”), a company owned by Mr.
Stoppenhagen. Under the terms of the consulting agreement, Venor will
perform certain consulting services for the Company with respect
to, among other
things, the provision of executive services (including, without limitation,
the
services of Mr. Stoppenhagen, the Company's Interim President and
Secretary) for
a period of six months. The Company will pay Venor a $5,000.00
monthly fee for certain of the services to be provided, with additional
services
to be billed at an hourly rate.
On
October 26, 2007, the Company’s Board of Directors voted unanimously to approve
the proposed divesture of the Subsidiary. Per the terms of the
proposed transaction, the Company would divest itself of the Subsidiary
to a
private company (“the Acquisition Company”) owned 100% by
former
directors, officers, and principal stockholders of the Company. In
return for
receiving 100% ownership of the Subsidiary, the Subsidiary, the
Acquisition Company, and Family Products LLC (a member of
the Acquisition
Company) would indemnify the Company against any, and all, past,
present, and
future financial obligations related to the Subsidiary except for
a $500,000
note payable that the Company would owe to the Acquisition Company.
In addition,
the Company will issue 79,311,256 shares of its common stock to the
Acquisition
Company, thereby giving the Acquisition Company ownership of 95%
of the
Company’s issued and outstanding shares of its common stock immediately after
the successful closing of this transaction. On November 1, 2007 the
Company entered into a Securities Exchange Agreement with the Acquisition
Company and Family Products LLC which provides for the foregoing
transactions
subject to customary closing conditions, including approval of the
divestiture
by the Company’s stockholders and the amendment of the Company’s certificate of
incorporation (i) to change the Company’s name and (ii) to increase the number
of authorized shares of Common Stock from 100,000,000 to
2,000,000,000.
The
Company’s goal is to divest itself of its money-losing Subsidiary and thereby
free itself of all financial obligations relating to the Subsidiary.
Upon
successful completion of the proposed transaction, the Company
would have no
operating activities, minimal on-going financial obligations except
for a
$500,000 note payable, and the freedom to pursue new business opportunities.
The
Company anticipates that this transaction, which is subject to
stockholder
approval, will be finalized by the end of 2007 or during the first
quarter of
2008.
The
Subsidiary currently has operations in ten states, and has also acquired
properties in Mexico. The Subsidiary is not dependent on any single
customer and
no customer represents over 10% of its total revenues.
The
objective of the Subsidiary in its current line of business is to
achieve and sustain a manageable growth rate that will enable it
to become a
market leader in its field. Management believes that this objective
can be
achieved by expanding the Subsidiary’s “direct to consumer” marketing efforts,
developing networking responsiveness to assess buyer satisfaction,
and
dedicating additional resources to acquisition efforts. To date,
marketing
efforts have indicated that customers who buy may have a recurring
need to buy
for investment and/or resale purposes. Consequently, each customer
represents
the potential for multiple sales. The Subsidiary’s ability to achieve its
objectives is dependent on its cash flow from operations, which currently
is not
sufficient to meet its financial obligations. The Subsidiary must
improve its
cash flow by either increasing sales of its existing inventory or
through the
additional borrowing of funds from its affiliates, or a combination
of the two.
The Subsidiary cannot offer any assurances that it will be able to
sell enough
inventory, in a timely manner, to satisfy its financial obligations.
In
addition, the Subsidiary cannot offer any assurances that it will
be able to
secure additional financing from its affiliates. Should the Subsidiary
be unable
to generate sufficient cash through the sale of its existing inventory
or
through additional loans from its affiliates, the Subsidiary may
be forced to
significantly curtail its current operations or cease operations
altogether. The
Subsidiary is not currently pursuing any outside financing from independent
third parties with whom it has no affiliation.
The
Subsidiary finances its operations by loans from affiliated companies
and
revenues generated from operations. From the commencement of operations
in the
second quarter of 2005 through September 30, 2007, the Subsidiary had
net
borrowings from its affiliates, including accrued interest, of $3,110,031
and net recognized revenues totaling $7,563,080, of which $1,986,101
was gross
profit, which is defined as revenue less the cost of the land, processing
fees,
merchant fees, dues and taxes, and royalties. The Subsidiary derives
revenue
solely from the sale of the properties that it acquires.
The
Subsidiary incurs the following costs of revenue:
Operating
Expenses
Sales
and Marketing Expense: The Subsidiary’s sales and marketing expenses,
excluding royalty agreements, consist primarily of personnel costs
for its sales
and marketing staff, travel and lodging, marketing programs, allocated
facilities, and other related overhead. The Subsidiary no longer pays
commissions on the sale of its properties.
Acquisition
Team: The Subsidiary has a team of four (4) acquisition specialists
responsible for identifying and acquiring suitable properties. Expenses
consist
primarily of personnel costs for team members, purchase commissions,
travel and
lodging, and other related overhead. The Subsidiary pays commissions
only upon
completion of the purchase transaction, including transfer of the
deed.
General
and Administrative Expenses: The Subsidiary’s general and administrative
expenses consist of personnel costs for executives and staff (finance/accounting
and human resources), as well as costs relating to travel and lodging,
accounting/audit services, legal and other professional services, and
other
costs incurred during the normal course of operations.
Acquisition
Costs: To date the Subsidiary has acquired all of its
properties, with the exception of certain parcels in Nevada, for cash.
The
average cost of properties that it acquires varies depending on the
size,
location and other specific characteristics of each property.
Income
Taxes: The Subsidiary’s income tax expense includes the tax obligations for
the multiple tax jurisdictions in which it operates. Income tax expense
is
affected by the profitability of our operations in the jurisdictions
in which we
operate, the applicable tax rate for these jurisdictions, and our tax
policies.
The Subsidiary makes significant estimates in determining its income
tax
expense. If its actual amounts differ from these estimates, its provision
for
income taxes could be materially impacted.
Royalty
payment: The Subsidiary derives a significant number of customers from
databases developed by certain of its affiliates. Pursuant to royalty
agreements, it pays a royalty to these affiliates equal to 35% of gross
profits
(less acquisition costs) earned on any cash sale of a property to a
customer
referred to it under these royalty agreements. The Subsidiary’s ability to draw
on these customer databases significantly reduces its direct sales
and marketing
expenses. In the future, the Subsidiary intends to continue to make
use of its
affiliate databases, but also hopes to develop other distribution methods,
particularly where the Subsidiary acquires a significant number of
lots in one
area.
COMPARISON
OF THE THREE AND NINE MONTH PERIODS ENDED SEPTEMBER 30, 2007 AND
2006
The
following discussion/analysis regarding revenue, cost of goods sold,
and gross
profit refers only to the Subsidiary. Landbank Group, Inc. had no revenue,
no cost of goods sold, and no gross profit.
Results
of Operations
Net
revenue for the three month period ended September 30, 2007 was $190,204,
which
represents a decrease of $916,693, or 82.8%, from the $1,106,897 recorded
during
the same period in fiscal year 2006. The decrease in net revenue was
the direct
result of the Subsidiary’s closing of its Arizona sales office, which resulted
in a significant decrease in both sales volume and net revenue. The
Subsidiary
sold 155 properties during the current three month period, a decrease
of 313, or
66.9%, from the 468 properties sold during the same three month period
in fiscal
year 2006. The average per property selling price was $1,227 during
the current
three-month period, which represents a decrease of $1,138, or 48.1%,
per
property as compared to the $2,365 average sales price during the same
three-month period in fiscal year 2006. The decrease in the average
selling
price is attributable to several factors, including, but not limited
to, general
overall market conditions, the quality of the properties sold, and
the size of
the properties sold.
During
the nine-month period ended September 30, 2007, net revenue totaled
$1,742,501,
a decrease of $1,591,479, or 47.7%, from the $3,333,980 recorded during
the same
period in fiscal year 2006. The Subsidiary sold 916 properties during
the
nine-months ended September 30, 2007, a decrease of 1,274 units, or
58.2%, from
the 2,190 properties sold during the same nine-month period last year.
The
average selling price during the current nine-month period was $1,902
per
property, an increase of $380 per property, or 25.0%, from the $1,522
average
selling price during the same period last year. The increase in average
selling
price was driven by the improved quality, and larger size, of the properties
sold during the early part of fiscal year 2007. Since then, the average
selling
price of the properties sold by the Subsidiary have been adversely
affected by
general market/economic conditions, the size of the properties sold,
and the
overall quality of the properties sold. In reference to the size of
properties
sold, the Subsidiary sold several 40-acre parcels earlier in fiscal
year 2007,
each of which carried a sales price upwards of $10,000 per property.
The sale of
these types of properties can, and did, affect the average selling
price of the
properties sold.
As
previously stated, the Subsidiary is struggling with its inability
to acquire a
diversified portfolio of properties that would allow it to continue
selling in
volume without flooding, or saturating, a particular market, and/or
geographic
location, and depressing property values in the process. The Subsidiary
is
constantly trying to manage revenue/volume growth while also trying
to protect
its markets from becoming flooded, or saturated, with properties available
for
sale, which may depress property values and adversely affect the ability
of its
Customers to resell their properties at a profit. During the three
month period
ended June 30, 2007, the Subsidiary closed its sales office in Arizona
and
stopped selling properties in volume due to its lack of diversified
real estate
holdings. The Subsidiary is currently working to acquire additional
properties
and diversify its real estate holdings, but there can be no assurance
that it
will be successful, and therefore, no assurance that it will begin
selling
properties in volume again.
The
following table details the number of properties sold, the state in
which the
properties sold were located, and the net revenue generated by the
properties
sold for both the three and nine-month periods ended September 30,
2007 and
2006:
|
As
of September 30, 2007
|
As
of September 30, 2006
|
||||||||||||||||||||||||||||||
|
3-Months
|
9-Months
|
3-Months
|
9-Months
|
||||||||||||||||||||||||||||
|
Properties
Sold
|
Revenue
(000)
|
Properties
Sold
|
Revenue
(000)
|
Properties
Sold
|
Revenue
(000)
|
Properties
Sold
|
Revenue
(000)
|
||||||||||||||||||||||||
|
Arizona
|
7
|
$ |
8.0
|
38
|
$ |
54.2
|
-
|
$ |
-
|
-
|
$ |
-
|
|||||||||||||||||||
|
Colorado
|
1
|
8.8
|
9
|
98.3
|
8
|
146.2
|
10
|
166.9
|
|||||||||||||||||||||||
|
Florida
|
1
|
7.1
|
2
|
7.6
|
16
|
117.4
|
16
|
117.4
|
|||||||||||||||||||||||
|
Michigan
|
-
|
-
|
8
|
12.8
|
-
|
-
|
-
|
-
|
|||||||||||||||||||||||
|
New
Mexico
|
7
|
15.4
|
28
|
58.3
|
46
|
167.2
|
46
|
167.2
|
|||||||||||||||||||||||
|
Oklahoma
|
2
|
1.1
|
28
|
22.9
|
81
|
91.6
|
421
|
592.3
|
|||||||||||||||||||||||
|
Pennsylvania
|
(8 | ) | (17.7 | ) |
266
|
684.5
|
136
|
351.9
|
280
|
550.5
|
|||||||||||||||||||||
|
Texas
|
145
|
167.5
|
537
|
803.9
|
181
|
232.6
|
1,417
|
1,739.7
|
|||||||||||||||||||||||
|
155
|
$ |
190.2
|
916
|
$ |
1,742.5
|
468
|
$ |
1,106.9
|
2,190
|
$ |
3,334.0
|
||||||||||||||||||||
Cost
of
goods sold during the three-month period ended September 30, 2007 totaled
$178,329, a decrease of $595,468, or 77.0%, from the $773,797 incurred
during
the same period in fiscal year 2006. The average cost of a property
sold during
the current three-month period was $1,150, a decrease of $503, or 30.4%,
from
the per property average of $1,653 during the same period in fiscal
year 2006.
As a percentage of the average selling price, the average property
cost in the
current quarter was 93.7% as compared to 69.9% during the same period
in 2006.
The significant increase in the average property cost, as measured
as a
percentage of the average sales price, is due primarily to general
market
conditions, which have adversely affected both sales prices and the
resulting
profit margins. The decrease in the average sales price of the properties
sold
during the current three-month period as compared to the same period
last year,
as measured in dollars, is due to decreases in (1) land costs, which
vary
depending on quality and size, (2) royalties paid to related parties,
which are
a function of gross profit, (3) sales commissions, which are no longer
paid by
the Subsidiary, (4) processing fees, which are incurred in the processing
of
deeds and related paperwork, and (5) merchant fees charged on credit
card sales.
These decreases were partially offset by the increase in dues and taxes,
which
resulted from the Subsidiary holding its properties longer and thereby
incurring
additional “holding” costs.
Cost
of
goods sold during the nine-month period ended September 30, 2007 was
$1,327,611,
a decrease of $1,082,172, or 44.9%, from the $2,409,783 incurred during
the same
period in fiscal year 2006. As a percentage of net revenue, cost of
goods sold
was 76.2% during the current nine-month period and 72.3% during the
same period
last year. The average cost of a property sold during the current nine-month
period was $1,449, an increase of $349, or 31.7%, as compared to the
$1,100
average cost per property sold during the same period last year. The
increase in
the average property cost, in terms of dollars, is due to (1) increased
land
costs, which are a function of both the size, and quality, of the property
sold,
(2) increased processing fees, (3) increased merchant fees, (4) increased
sales
commissions paid, and (5) increased dues and taxes. As previously mentioned,
the
increase in dues and taxes resulted from the Subsidiary holding its
properties
longer and thereby incurring additional “holding” costs, while both merchant
fees and processing fees are dictated by independent third parties
and are
beyond the control of the Subsidiary. As for sales commissions, they’re a
function of the selling price, which increased during the nine-month
period
ended September 30, 2007 (sales commissions are no longer paid on properties
sold). Partially offsetting these cost increases was a modest decline
in
royalties paid to a related party, which, as previously mentioned,
are a
function of gross profit.
The
Subsidiary’s cost of goods sold, and the corresponding average cost per property
sold, for both the three and nine-month periods ending September 30,
2007, and
2006, is detailed below:
|
As
of September 30, 2007
|
As
of September 30, 2006
|
||||||||||||||||||||||||||||||
|
3-Months
|
9-Months
|
3-Months
|
9-Months
|
||||||||||||||||||||||||||||
|
Total
(000)
|
Per
lot average
|
Total
(000)
|
Per
lot average
|
Total
(000)
|
Per
lot average
|
Total
(000)
|
Per
lot average
|
||||||||||||||||||||||||
|
Land
Cost
|
$ |
122.1
|
$ |
787.7
|
$ |
828.9
|
$ |
904.9
|
$ |
520.5
|
$ |
1,112.2
|
$ |
1,535.0
|
$ |
700.9
|
|||||||||||||||
|
Royalty
to related party
|
6.4
|
41.3
|
184.0
|
200.9
|
179.5
|
383.5
|
485.4
|
221.6
|
|||||||||||||||||||||||
|
Processing
fees
|
11.1
|
71.6
|
116.0
|
126.6
|
42.4
|
90.6
|
142.5
|
65.1
|
|||||||||||||||||||||||
|
Merchant
fees
|
7.2
|
46.5
|
68.8
|
75.1
|
22.8
|
48.7
|
76.5
|
34.9
|
|||||||||||||||||||||||
|
Sales
commissions
|
-
|
-
|
70.1
|
76.5
|
44.2
|
94.4
|
134.6
|
61.5
|
|||||||||||||||||||||||
|
Dues
& taxes
|
31.5
|
203.2
|
59.8
|
65.3
|
(35.6 | ) | (76.1 | ) |
35.8
|
16.3
|
|||||||||||||||||||||
| $ |
178.3
|
$ |
1,150.3
|
$ |
1,327.6
|
$ |
1,449.3
|
$ |
773.8
|
$ |
1,653.4
|
$ |
2,409.8
|
$ |
1,100.4
|
||||||||||||||||
Gross
profit for the three months ended September 30, 2007 was $11,875, a
decrease of
$321,225, or 96.4%, as compared to gross profit of $333,100 during
the
three-months ended September 30, 2006. As a percentage of net revenue,
gross
profit was 6.2% during the current period and 30.1% during the same
period in
fiscal year 2006. During the nine-months ended September 30, 2007,
gross profit
totaled $414,890, a decrease of $509,307, or 55.1%, as compared to
gross profit
of $924,197 during the same period in 2006. As a percentage of net
revenue,
gross profit was 23.8% during the current nine-month period and 27.7%
during the
same period in fiscal year 2006. The decrease in gross profit, as measured
in
dollars, for both the three and nine-month periods ended September
30, 2007 as
compared to the same periods in 2006, was due to the decrease in the
number of
properties sold. Gross profit, as measured as a percentage of net revenue,
decreased in the current three-month period, as compared to the same
period last
year, due to the significant decrease in the average sales price as
well as the
increase in dues and taxes. As for the nine-month period ended September
30,
2007, as compared to the same period last year, gross profit, as measured
as a
percentage of net revenue, declined due to increases in all direct
costs except
for royalties paid to a related party.
Total
operating expenses for both Landbank Group, Inc. and Landbank, LLC
were $290,432
during the three-months ended September 30, 2007, which represents
a decrease of
$92,406, or 24.1%, from the $382,838 that was incurred during the same
period
last year. Of these totals, Landbank Group, Inc.’s portion was $40,706 in the
current three-month period as compared to $76,051 during the same period
in
fiscal year 2006. These expenses consisted primarily of compensation
paid to
Directors and Officers, as well as consulting fees and expenses associated
with
its Directors and Officers insurance policy. The Subsidiary’s portion of the
operating expenses for the current three-month period was $249,726
and consisted
of salaries and related expenses (approx. $120.1K), legal fees (approx.
$44.1K),
professional fees (approx. $41.2K), accounting/review fees (approx.
$15.0K),
office rent (approx. $9.0K – of which approx $5.6K was to a related party), and
other expenses totaling approximately $20.3K. The Subsidiary’s portion of the
operating expenses for the same three-month period last year was $306,787
and
consisted of salaries and related expenses (approx. $136.2K), legal
fees
(approx. $40.3K), professional fees (approx. $25.2K), accounting/review
fees
(approx. $20.7K), investor relations expenses (approx. $45.1K), office
rent
(approx. $5.6K – all to a related party), and other expenses totaling
approximately $33.6K. The Subsidiary’s operating expenses decreased by $57,061,
or 18.6%, during the current three-month period as compared to the
same period
last year. The primary cause for the decrease was the $16.2K decrease
in
salaries and related expenses, which resulted from headcount reductions,
and the
$45.1K decrease in investor relations expenses, which resulted from
the
Subsidiary not paying an investor relations firm.
For
the
nine-month period ending September 30, 2007, total operating expenses
for both
Landbank Group, Inc. and Landbank, LLC were $985,242, which represents
a
decrease of $455,482, or 31.6%, from the $1,440,724 that was incurred
during the
same period last year. Landbank Group, Inc.’s share of the operating expenses
was $139,243 during the current nine-month period, a decrease of $360,407,
or
72.1%, as compared to the $499,650 incurred during the same period
in fiscal
year 2006. The decrease is due almost entirely to the non-recurring,
non-cash
charge of $374,667 recorded by Landbank Group, Inc. for shares issued
in
consideration for professional services received during the nine-month
period
ended September 30, 2006 (see notes 11 and 13 of the financial statements).
Landbank, LLC’s portion of the operating expenses totaled $845,999 for the
current nine-month period, which represents a decrease of $95,075,
or 10.1%,
from the $941,074 incurred during the same period last year. This decrease,
as
measured on a year-to-year basis, is due almost entirely to the $97,028
decrease
in travel expenses, which resulted from the Subsidiary not purchasing
as much
property as it has in the past, which resulted in a decrease in travel
related
expenses associated with the inspection of properties and the
participation in tax foreclosure sales.
The
following table details the combined total operating expenses of Landbank
Group, Inc. and Landbank, LLC for the three and nine-month periods
ended
September 30, 2007 and 2006:
|
FY
2007
|
FY
2006
|
||||||||||||||
|
3-Months
|
9-Months
|
3-Months
|
9-Months
|
||||||||||||
|
Salaries
& related
|
$ |
120.1
|
$ |
391.9
|
$ |
136.2
|
$ |
331.4
|
|||||||
|
Directors
& Officers compensation
|
31.4
|
112.1
|
27.5
|
27.5
|
|||||||||||
|
Legal
fees
|
44.1
|
133.3
|
40.3
|
149.5
|
|||||||||||
|
Accounting/audit
fees
|
15.0
|
45.0
|
20.7
|
37.2
|
|||||||||||
|
Investor
relations
|
-
|
9.3
|
45.1
|
102.7
|
|||||||||||
|
Professional
fees
|
41.2
|
64.3
|
25.2
|
560.5
|
|||||||||||
|
Office
rent
|
9.0
|
25.8
|
5.6
|
16.7
|
|||||||||||
|
Travel
|
2.7
|
21.0
|
50.7
|
118.1
|
|||||||||||
|
Insurance
|
9.4
|
33.0
|
2.5
|
2.5
|
|||||||||||
|
Depreciation
|
2.6
|
6.9
|
-
|
-
|
|||||||||||
|
Non-recurring
charge - Nevada properties
|
-
|
50.0
|
-
|
-
|
|||||||||||
|
Other
|
14.9
|
92.6
|
29.0
|
94.6
|
|||||||||||
| $ |
290.4
|
$ |
985.2
|
$ |
382.8
|
$ |
1,440.7
|
||||||||
During
the three month period ended March 31, 2006, the Subsidiary incurred
a one-time
cash charge of $140,000 in relation to its acquisition by Landbank
Group, Inc.
(see note 2 of the financial statements). No such extraordinary charge
was
incurred by the Subsidiary during the three, or nine, month periods
ended
September 30, 2007.
The
Subsidiary’s interest expense for the three-months ended September 30, 2007
totaled $56,199, of which $12,458 was interest incurred on its bank
loan (see
note 8 of the financial statements) and the remaining $43,741 was interest
incurred on loans from related parties (see note 6 of the financial
statements). During the same three-month period in fiscal year 2006,
interest
expense was $54,658, with $13,204 relating to the bank loan and the
remaining
$41,454 relating to loans from related parties. For the nine-month
period ending
September 30, 2007, interest expense totaled $160,419, with $37,377
relating to
the bank loan and $123,042 relating to interest accrued on the related
party
borrowings. Interest expense was $131,599 during the same nine-month
period in
2006, with $41,157 relating to the bank loan and the remaining $90,442
relating
to the related party loans. The increase in interest expense during
both the
three and nine-month periods ended September 30, 2007, as compared
to the same
periods in fiscal year 2006, is due almost entirely to the interest
accrued on
the related party loans. The Subsidiary’s increased borrowing from related
parties resulted in an increase in interest expense. Landbank Group,
Inc. did
not incur any interest expense in either nine-month period ending September
30,
2007 and 2006.
The
net
loss for both Landbank Group, Inc. and Landbank, LLC for the three-months
ended
September 30, 2007 totaled $335,556, an increase of $231,160 from
the net loss
of $104,396 incurred during the same three-month period in 2006.
As previously
mentioned, the primary reason for the significant increase in net
loss during
the three-month period ended September 30, 2007, as compared to the
same period
in 2006, is due to the significantly lower sales volume/net revenue,
which
barely generated any gross profit. Landbank Group, Inc.’s portion of the net
loss was $41,506, which represents a decrease of $34,545, or 45.4%,
from the
$76,051 incurred during the same period in fiscal year 2006. This
decrease is
solely attributed to the $45,000 decrease in investor relations expenses,
which
was partially offset by increases in compensation paid to Directors
and Officers
and insurance expenses. Landbank, LLC’s portion of the net loss for the
three-month period ended September 30, 2007 totaled $294,050, which
represents
an increase of $265,705 from the $28,345 incurred during the same
period last
year. The significant increase in Landbank, LLC’s net loss is primarily
attributable to the decrease in sales volume/net revenue, which resulted
in a
nominal gross profit of $11,875, which barely covered any portion
of its
operating expenses.
For
the
nine-month period ended September 30, 2007, the net loss for both Landbank
Group, Inc. and Landbank, LLC totaled $733,171, a decrease of $54,955
from the
same period in fiscal year 2006. The net loss during the current nine-month
period would have increased by $319,712, as compared to the same nine-month
period in 2006, if the nonrecurring, non-cash charge of $374,667 was
excluded.
The net loss associated with Landbank Group, Inc. was $140,043 during
the
current nine-month period, a decrease of $359,607 from the $499,650
incurred
during the same period in fiscal year 2006. The decrease is attributable
to the
previously mentioned charge of $374,667 that was recorded by Landbank
Group, Inc
during the nine-months ended September 30, 2006. Landbank, LLC’s share of the
net loss was $593,128, a decrease of $304,652 as compared to the net
loss of
$288,476 that it incurred during the same period last year. The decrease
is
sales volume/net revenue was the primary factor in the increased net
loss, as
measured on a year-to-year basis, for Landbank, LLC.
Assets
and Liabilities
The
following discussion of assets and liabilities refers solely to Landbank,
LLC,
the operating subsidiary, unless otherwise noted. As of September 30,
2007,
Landbank Group, Inc. had no assets and only one liability; that being
a $216,152
inter-company balance owed to Landbank, LLC.
Landbank,
LLC had a cash balance of $3,618 as of September 30, 2007, a decrease
of
$262,352 from the $265,970 on hand as of December 31, 2006. The decrease
in cash
is primarily attributable to Landbank, LLC’s net loss of $593,128 during the
nine-month period ended September 30, 2007, as well as the $494,034
reduction in
deferred revenue and the $125,244 reduction in accounts payable and
accrued
expenses. The Company also used $20,789 to purchase capital equipment
(computers
and related hardware) and an additional $50,576 to repay its bank loan
(see
note 8 of the financial statements). These cash outflows were partially
offset by the $382,389 gained from inventory sold, the $469,156 borrowed
from
related parties, and the $182,425 gained from the reduction in prepaid
expenses
and other receivables.
The
following is a summary of cash used during the nine-month period ended
September
30, 2007:
|
Cash
as of 12/31/06
|
|
$
|
265,970
|
|
|
|
|
|
|
|
|
Net
loss for the nine months ended 9/30/07
|
|
|
(593,128
|
)
|
|
Add
back depreciation - capital equipment
|
|
|
13,856
|
|
|
Less
cash used to pay down accounts
|
|
|
|
|
|
payable
and accrued expenses
|
|
|
(41,244
|
)
|
|
Less
reduction in deferred revenue
|
|
|
(494,034
|
)
|
|
Less
funds loaned to Landbank Group, Inc.
|
(110,407
|
)
|
||
|
Less
principal payments on bank loan
|
|
|
(50,576
|
)
|
|
Less
capital equipment purchases
|
|
|
(20,789
|
)
|
|
Add
cash from inventory sold
|
|
|
382,389
|
|
|
Add
cash borrowed from related parties
|
|
|
469,156
|
|
|
Add
cash from reduction in prepaid expenses
|
|
|
173,883
|
|
|
Add
cash from reduction in other receivables
|
|
|
8,542
|
|
|
Cash
provided during the nine months ended 9/30/07
|
|
|
(262,352
|
)
|
|
|
|
|
|
|
|
Cash
as of 9/30/07
|
|
$
|
3,618
|
|
Landbank,
LLC’s inventory was $2,854,874 as of September 30, 2007, a decrease of
$382,389
from the $3,237,263 that was held as of December 31, 2006. Landbank,
LLC
purchased $202,629 of new properties during the nine months ended September
30,
2007, with $132,384 of the purchases being properties located in Texas,
$3,892
being properties purchased in Missouri, and the remaining $66,353 being
properties located in Pennsylvania. Landbank, LLC also capitalized
$243,920 in
costs associated with its property holdings, with the costs consisting
of taxes,
dues and association fees, and improvement costs. In regard to the
$243,920 of
capitalized expenses, $118,453 was directly related to costs incurred
for the
subdividing of Landbank, LLC’s Pershing County, Nevada property. Land costs
associated with Landbank, LLC’s revenue for the nine-month period ended
September 30, 2007 were $828,938, which, net of the $202,629 in land
purchases
and $243,920 in capitalized costs, equates to the aforementioned $382,389
reduction in inventory. The following is a summary of Landbank, LLC’s inventory
holdings as of September 30, 2007:
|
|
Actively
Marketed
|
Being
prepared for marketing
|
Total
|
||||||||
|
Colorado
|
211,103
|
-
|
211,103
|
||||||||
|
Florida
|
11,775
|
-
|
11,775
|
||||||||
|
Michigan
|
10,277
|
-
|
10,277
|
||||||||
|
Missouri
|
-
|
3,892
|
3,892
|
||||||||
|
Mexico
|
-
|
298,348
|
298,348
|
||||||||
|
Nevada
|
47,291
|
935,066
|
982,357
|
||||||||
|
New
Mexico
|
11,411
|
-
|
11,411
|
||||||||
|
Oklahoma
|
11,288
|
-
|
11,288
|
||||||||
|
Pennsylvania
|
259,641
|
2,160
|
261,801
|
||||||||
|
Texas
|
848,247
|
9,634
|
857,881
|
||||||||
|
Deferred
inventory (see note 4 of the financial statements)
|
194,741
|
-
|
194,741
|
||||||||
|
|
$ |
1,605,774
|
$ |
1,249,100
|
$ |
2,854,874
|
|||||
“Actively
Marketed” properties are properties that are ready for immediate resale, while
properties “Being Prepared for Marketing” are properties that are not currently
ready to be sold due to any number of reasons, such as, but not limited
to,
zoning issues and title issues. In regard to the properties listed
above that
are categorized as “Being Prepared for Marketing”, the property in Mexico is
awaiting final deeding from the previous owner to Landbank, LLC. The
deeding
process in Mexico has proven to be a slow and tedious affair, and,
based on this
particular experience, Landbank, LLC will carefully evaluate any future
purchases of property in Mexico. The Nevada property, which is also
categorized
as “Being Prepared for Marketing”, has been delayed from being actively marketed
as Landbank, LLC awaited approval to subdivide the properties into
smaller
parcels. Landbank, LLC had its subdivision plans approved during the
three-month
period ended September 30, 2007 and sold its first two Nevada properties
in
September 2007. This property was originally purchased in fiscal year
2005 and
is the only property that Landbank, LLC has not purchased for cash
in full; this
property is financed by a bank loan (see note 5 of the financial statements).
The remaining properties that are categorized as “Being Prepared for Marketing”,
which are located in Missouri, Pennsylvania, and Texas, were purchased
during
the nine-month period ended September 30, 2007 and late in fiscal year
2006 and
are in the process of being deeded to Landbank, LLC.
As
previously mentioned, Landbank, LLC is pursuing strategies to diversify
its real
estate holdings. Landbank, LLC believes that a broad, diversified inventory
of
properties may provide more buying options to its customer base while
also
attracting new customers who may not have previously purchased property
from
Landbank, LLC because it didn’t offer the type of property that these
individuals were interested in buying. Also, Landbank, LLC believes
that a
diversified inventory portfolio may allow it to increase both sales
volume and
net revenue while minimizing the potential to flood a particular market,
or
geographic region, with properties, and, in the process, depress property
values
and adversely impact the ability of our customers to resell their property
at a
profit.
Prepaid
expenses totaled $40,292 as of September 30, 2007, a decrease of $173,883,
or
81.2%, from the $214,175 as of December 31, 2006. The decrease in prepaid
assets
is due entirely to the expensing of prepaid expenses related to Landbank,
LLC’s
deferred revenue. Landbank, LLC follows FASB 66 - Accounting for Sales
of Real
Estate (see note 1 of the financial statements), and due to its 60-day
refund
policy, all sales transactions, and their related direct expenses,
are not
recognized until after the expiration of the buyer’s 60-day rescission period.
Due to the significant decrease in property sales (see revenue discussion
above
and note 4 of the financial statements), Landbank, LLC has expensed, as of
September 30, 2007, all of the direct costs, except land costs and
royalties
paid to an affiliate, associated with its deferred revenue. This was
done
because deferred revenue as of September 30, 2007, which was $300,633,
represented approximately 4.0% of total revenue booked by Landbank,
LLC since
its inception in 2005; meaning that approximately 96.0% of all booked
revenue
has been recognized as of September 30, 2007. Therefore, given that
approximately 96.0% of total revenues from inception have been recognized
as of
September 30, 2007, and that the remaining capitalized direct costs,
except for
land and royalty costs, were nominal and not material, Landbank, LLC
elected to
expense the remaining direct costs (merchant fees, processing fees,
and sales
commissions) as of September 30, 2007. These prepaid direct costs totaled
$196,095 as of December 31, 2006. Prepaid rent represents both the
October 2007
rent payment and the last monthly rent payment on Landbank, LLC’s office in
Alameda, California. Prepaid insurance relates to both Landbank, LLC’s general
liability policy and Landbank Group, Inc.’s directors & officers insurance
policy, both of which are expensed over the one-year term of the policies.
Landbank, LLC pays the monthly/annual premiums on Landbank Group, Inc.’s
directors and officers policy and allocates the expense to Landbank
Group,
Inc.
The
following table details prepaid expenses as of September 30, 2007:
|
|
As
of 9/30/07
|
||
|
Rent
|
$ |
4,663
|
|
|
Insurance
|
5,495
|
||
|
Legal
retainers
|
8,150
|
||
|
Prepaid
royalties (see note 10 of the financial statements)
|
14,484
|
||
|
Other
|
7,500
|
||
|
|
$ |
40,292
|
|
Property
and equipment totaled $6,933, net of accumulated depreciation, as of
September
30, 2007 and consisted of computers and related computer hardware.
These assets
were purchased for use in Landbank, LLC’s Alameda office and were put into
service in February 2007. These assets were recorded at their cost
of $20,789,
which included the purchase price, tax, and freight. Landbank, LLC
is expensing
these assets over a twelve (12) month period beginning February 2007,
with the
monthly depreciation totaling $1,732. During the nine month period
ended
September 30, 2007, Landbank, LLC recorded depreciation expense of
$13,856, with
one-half of that amount allocated to an affiliate who shares the Alameda
office
with Landbank, LLC. For the nine months ended September 30, 2007, Landbank,
LLC’s net depreciation expense was $6,928.
Landbank,
LLC’s current liabilities totaled $3,819,410 as of September 30, 2007,
a
decrease of $148,950 from the $3,968,360 as of December 31, 2006, which
represents the total current liabilities of both Landbank Group, Inc.
and
Landbank, LLC as of year-end 2006.
The
following table details Landbank, LLC’s current liabilities as of September 30,
2007:
|
Current
liabilities as of September 30, 2007
|
|||
|
Accounts
payable
|
$ |
273,847
|
|
|
Due
to related parties - principal
|
2,811,390
|
||
|
Due
to related parties - accrued interest
|
298,641
|
||
|
Accrued
expenses
|
40,036
|
||
|
Accrued
payroll
|
54,496
|
||
|
Loan
payable - current portion
|
40,367
|
||
|
Deferred
income
|
300,633
|
||
|
|
$ |
3,819,410
|
|
Accounts
payable consist of normal expenses incurred during the course of
business, and,
given Landbank, LLC’s significantly reduced sales/revenue volume and negative
cash flow from operations, the majority of its payables are past
vendor terms.
As of September 30, 2007, accounts payable totaled $273,847, with
seven vendors
accounting for $224,729 of the total. In regard to those seven vendors,
$108,757
was owed to Landbank, LLC’s outside attorneys, $95,972 was owed to three
property owners associations and one county tax agency, and $20,000
was owed to
an independent third-party consulting company. The remaining balance
of
Landbank, LLC’s accounts payable consists of various vendors who are owed
relatively small amounts. Landbank, LLC owed related parties $3,110,031
as of
September 30, 2007, with $2,811,390 consisting of principal owed
and the
remaining $298,641 relating to accrued, unpaid interest. Accrued
expenses
totaled $40,036 as of September 30, 2007 and consisted of (1) accrued
legal and
professional fees of $31,350, (2) accrued accounting/review fees
of $7,500, and
(3) accrued insurance expenses totaling $1,186. Accrued payroll totaled
$54,496
as of September 30, 2007 and consisted of two (2) weeks of accrued
salary and
accrued, unpaid vacation pay. Deferred revenue totaled $300,633 as
of September
30, 2007 and relates to land sales that have occurred as of September
30, 2007,
but whose revenue has not been recognized as of September 30, 2007
in compliance
with FASB 66 - Accounting for Sales of Real Estate (see note 1 of
the financial
statements).
The
$148,950 decrease in current liabilities as of September 30, 2007 as
compared to
December 31, 2006 is the result of the following:
|
Accounts
payable (Landbank, LLC)
|
|
$
|
110,672
|
|
|
Due
to related parties – principal (Landbank, LLC)
|
|
|
340,935
|
|
|
Due
to related parties – accrued interest (Landbank,
LLC)
|
|
|
128,221
|
|
|
Accrued
expenses (Landbank, LLC)
|
|
|
(154,964
|
)
|
|
Accrued
payroll (Landbank, LLC)
|
|
|
3,048
|
|
|
Loan
payable – current portion (Landbank, LLC)
|
|
|
1,172
|
|
|
Deferred
revenue (Landbank, LLC)
|
|
|
(494,034
|
)
|
|
Accrued
expenses (Landbank Group, Inc.)
|
(84,000
|
)
|
||
|
Total
decrease
|
|
$
|
(148,950
|
)
|
The
$494,034 reduction in deferred revenue is due to the decrease in
property sales
during August and September 2007 (see revenue discussion above and
note 7of
the financial statements) as compared to the same two-month period
in fiscal
year 2006. The $238,964 reduction in accrued expenses is the result
of Landbank,
LLC paying, in full, (1) the final $155,000, in cash, owed to Piping
Partners
for services provided, and the related expense recorded, during fiscal
year
2006, and (2) Landbank Group, Inc. paying the final $84,000, via
the issuance of
93,333 shares of its common stock (see note 9 of the financial statements),
owed
to Aurelius Consulting Group. The $110,672 increase in accounts payable
was the
result of Landbank, LLC’s significantly reduced sales/revenue volume and
negative cash flow from operations, which has resulted in delayed
payments to
its vendors. The $469,156 (principal and interest) increase in the
amount owed
to related parties represents both the borrowings made by Landbank,
LLC to fund
its operations and the accrued, unpaid interest on the funds borrowed
from those
related parties.
As
of
September 30, 2007, Landbank, LLC owed $462,305 to a third party who
financed
its purchase of properties in Pershing County, Nevada, of which $40,367
is
classified as a current liability and $421,938 as a long-term liability.
The
properties were purchased in August 2005, and the amount owed as of
December 31,
2006 was $512,881. Landbank, LLC is required to make monthly payments
of
principal and interest, with total principal payments of $50,576 and
interest
payments of $37,377 having been made by Landbank, LLC during the nine
month
period ended September 30, 2007. In September 2007, Landbank, LLC repaid
$21,480
as payment in full for one of the 18 loans that was outstanding as
of June 30,
2007. The payment was made so it could begin selling the property that
was
securing that particular loan.
Shareholders’
deficit was $1,335,631 as of September 30, 2007 and is summarized in
the table
shown below. Landbank Group, Inc. had 9,928,664 shares of its common
stock
issued and outstanding as of September 30, 2007, of which 8,200,002
shares are
owned by three individuals affiliated with both Landbank Group, Inc
and
Landbank, LLC. Landbank Group, Inc is authorized to issue 100,000,000
shares of
its common stock, par value $0.0001 per share, which means 90,071,336
shares
were unissued as of September 30, 2007. Additional paid-in capital
increased by
$113,627 as of September 30, 2007, as compared to December 31, 2006,
due to (1)
the issuance of 93,333 shares for services valued at $84,000 (see note
10 of the
financial statements), and (2) the amortization of options granted
to officers
and directors of the Company (see note 14 of the financial statements).
The
consolidated net loss of Landbank Group, Inc. and Landbank, LLC was
of $733,171
during the nine- month period ended September 30, 2007, which increased
the
consolidated accumulated deficit to $1,849,868 as of September 30,
2007.
|
Summary
of Shareholders' Deficit as of September 30, 2007
|
|
|||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
|
|
|
Common
Shares
|
|
|
Common
Par
|
|
|
Additional
Paid in Capital
|
|
|
Accumulated
Deficit
|
|
|
Shareholders'
Deficit
|
|
|||||
|
Balance
as of December 31, 2006 (audited)
|
|
|
9,835,331
|
|
|
$
|
984
|
|
|
$
|
399,617
|
|
|
$
|
(1,116,697
|
)
|
|
$
|
(716,096
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization
of options granted to Directors & Officers
|
|
|
-
|
|
|
|
-
|
|
|
|
29,636
|
|
|
|
-
|
|
|
|
29,636
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
issued for services
|
|
|
93,333
|
|
|
|
9
|
|
|
|
83,991
|
|
|
|
-
|
|
|
|
84,000
|
|
|
Net
loss for the nine- month period ended September 30, 2007
– Landbank Group,
Inc.
|
(140,043
|
)
|
||||||||||||||||||
|
Net
loss for the nine- month period ended September 30, 2007
– Landbank, LLC
(the operations to be discontinued)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(593,128
|
)
|
|
|
(733,171
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
as of September 30, 2007
|
|
|
9,928,664
|
|
|
$
|
993
|
|
|
$
|
513,244
|
|
|
$
|
(1,849,868
|
)
|
|
$
|
(1,335,631
|
)
|
Liquidity
and Capital Resources
The
following discussion regarding liquidity and capital resources relates
to
Landbank, LLC only, as it’s the entity with actual business operations. As for
Landbank Group, Inc., its Board of Directors, as previously mentioned,
voted
unanimously on October 26, 2007 to approve a proposed transaction
to divest
Landbank, LLC to a private entity owned 100% by former directors,
officers and
principal stockholders of Landbank Group, Inc. On November 1, 2007,
Landbank Group, Inc. entered into a Securities Exchange Agreement
with the
Acquisition Company and Family Products LLC which provides this divestiture,
subject to customary closing conditions. By divesting Landbank, LLC,
Landbank Group, Inc. would be free of all financial obligations related
to
Landbank, LLC and its operations, except for a $500,000 note payable
to
Landbank, LLC by Landbank Group, Inc. Upon successful completion
of the proposed
transaction, Landbank Group, Inc. would have a clean balance sheet
and minimal
ongoing expenses and would be better positioned to pursue new, and
hopefully
more profitable, business opportunities. The Company anticipates that this
transaction, which is subject to stockholder approval, will be finalized
by the
end of 2007 or during the first quarter of 2008.
To
date,
Landbank,
LLC
has funded inventory acquisitions primarily from net revenue
received
from sales of properties in inventory and from funds borrowed from
affiliates.
Landbank,
LLC
has not incurred any debt in order to finance its operations,
with the
exception of amounts due to affiliates and mortgages taken out for
nineteen (19)
sections of land acquired in Pershing County, Nevada in 2005 (see note
5 of the
financial statements). These mortgages bear interest at 10% per annum
and mature
September 1, 2015.
Landbank,
LLC’s
available cash as of September 30, 2007 was $3,618, which means
it must
obtain additional funding from the sale of its existing inventory and/or
additional loans from its affiliates if its to continue as a going
concern.
While Landbank,
LLC
believes that it can continue as a going concern by utilizing
cash
generated from the sale of its existing inventory, it cannot offer
any
assurances that it will be able to sell enough inventory, in a timely
manner, to
satisfy its financial obligations. In addition, Landbank,
LLC
cannot offer any assurances that it will be able to secure additional
financing from its affiliates. Should Landbank,
LLC
be unable to generate cash through the sale of its existing
inventory or
through additional loans from its affiliates, Landbank,
LLC
may be forced to significantly curtail its current operations
or cease
operations altogether.
At
the
time of this filing, Landbank,
LLC
is not actively pursuing additional financing from independent
third
parties who are not affiliated with Landbank,
LLC, nor does it have any material commitments for capital expenditures.
There are no significant elements of income or loss arising from anything
other
than Landbank,
LLC’s
continuing operations.
Critical
Accounting Estimates
The
Company's consolidated financial statements are prepared in conformity
with U.S.
generally accepted accounting principles, which require the use of
estimates and
assumptions regarding certain types of assets, liabilities, revenues,
and
expenses. Management bases its estimates on historical experience and
on various
other assumptions that are believed to be reasonable under the circumstances.
The Company's estimates are based on the facts and circumstances available
at
the time; different reasonable estimates could have been used in the
current
period, and changes in the accounting estimates used are likely to
occur from
period to period, which may have a material impact on the presentation
of the
Company's financial condition and results of operations. Actual results
reported
by the Company may differ from such estimates. The Company reviews
these
estimates periodically and reflects the effect of revisions in the
period that
they are determined. Note 1 of the Notes to our Consolidated Financial
Statements includes a summary of the accounting policies and methods
used in the
preparation of our consolidated accounts. Set forth below is a brief
discussion
of what the Company believes to be the more critical judgment areas
in the
application of the Company's accounting policies.
Impairment
of Inventory
Landbank,
LLC’s inventory consists of land parcels that are purchased for resale
purposes,
and, except for special circumstances, do not normally remain in inventory
for a
prolonged period of time. Landbank, LLC records its inventory at the
lower of
cost or fair market value at the relevant balance sheet date. Landbank,
LLC
reviews its inventory on a quarterly basis in an attempt to (1) identify
"problem" properties that may become impaired (difficult or impossible
to sell),
and (2) identify the financial impact, or impairment, to the recorded
cost, or
carrying value, of these properties. Landbank, LLC attempts to measure
impairment on an item-by-item basis, but due to practical limitations,
it also
measures impairment for a group of similar/related properties. Landbank,
LLC
considers properties to be similar/related if they are from the same
subdivision
and/or geographic region. For the purpose of this discussion, the term
"property" refers to a specific property or a group of similar/related
properties.
Landbank,
LLC recognizes inventory impairment at the time it's incurred, which
is at the
conclusion of the aforementioned quarterly reviews. Impairment charges,
or
write-downs to the recorded value of a property, occur when the estimated
fair
market value (FMV) of a property falls below the recorded, or carrying
cost, of
the associated property. The estimated FMV of a property is based on
the
conditions that exist at the relevant balance sheet date, with consideration
being given to events after the relevant balance sheet date to the
extent that
they confirm conditions existing at or before the relevant balance
sheet date.
Landbank, LLC’s quarterly inventory impairment reviews require the exercise of
judgment and take into consideration all relevant information available
at the
time the review is conducted. This periodic comparison of comparable
information
determines if the value of our properties has become impaired.
In
attempting to identify impaired properties, Landbank, LLC begins by
analyzing
recent trends in selling prices (EBay, Bid4Assets, real estate agent
listings,
and Landbank, LLC’s sales records) to establish the estimated FMV of a property
and then compares the estimated FMV to the recorded value of the property
to
ensure that the estimated FMV has not fallen below the recorded value.
Should it
be determined that the estimated FMV is less than the recorded value,
Landbank,
LLC records the appropriate impairment charge at that time, as it writes
down
the value of the property to it's estimated FMV, which does not include
any
profit/markup.
Landbank,
LLC also reviews its properties to identify problems/issues that may
reduce a
property's value, such as, but not limited to, zoning issues, right
of way
issues, and failed perc tests. Any of these problems, and similar problems
not
previously mentioned, can have an adverse affect on the estimated FMV
of a
property and necessitate a write-down of the recorded value of said
property.
Should it be determined that such "problem" properties exist, Landbank,
LLC
records the appropriate impairment charge at that time, as it writes
down the
value of the property to it's estimated FMV, which, as previously mentioned,
does not include any profit/markup.
Landbank,
LLC’s return rates (the number of similar properties sold by Landbank,
LLC that
have been returned to it by the buyer) are also reviewed in an effort
to gauge
the favorability, or salability, of its properties. The purpose of
this review
is to attempt to determine if certain properties are (1) not in favor
with our
Customer base, (2) overpriced, (3) saturated for that particular market,
or (4)
problem properties for some reason unknown to Landbank, LLC. Should
it be
determined that certain properties are experiencing abnormally high
return rates
and may be difficult to sell at an estimated FMV above their recorded
cost,
Landbank, LLC will record the appropriate impairment charge at that
time, as it
writes down the value of the property to its estimated FMV.
Landbank,
LLC’s impairment analysis is predicated on establishing an accurate estimate
of
a property's FMV. This estimate of FMV is based on the analysis of
known trends,
demands, commitments, events and uncertainties. As previously stated,
Landbank,
LLC reviews all relevant information at its disposal at the time its
impairment
analysis is being performed, and uses that data to assess what impairment
charges, if any, have been incurred. However, estimated FMV can be
difficult to
establish and is contingent on market conditions, such as, but not
limited to,
supply and demand, local and national economic factors, and interest
rates. Any
change in these market conditions, and similar conditions not previously
mentioned, could have a material impact on estimated FMV, and, therefore,
future
inventory impairment charges incurred by Landbank, LLC. Since there
is not
always a readily available source for land values, the weight of all
measures,
as described above, are considered by management in its impairment
analysis.
RISK
FACTORS
Risk
Factors that May Affect Future Results and Market Price of
Stock
In
the
following discussion of risk factors, the term “the Company” refers to the
combined entities of Landbank Group, Inc. and its operating subsidiary,
Landbank, LLC unless otherwise noted.
The
Company's operations and its securities are subject to a number of
substantial
risks, including those described below. If any of these or other yet
unforeseen
risks actually occur, the Company's business, financial condition,
and operating
results, as well as the trading price or value of its securities could
be
materially adversely affected. No attempt has been made to rank these
risks in
the order of their likelihood or potential harm. In addition to those
general
risks enumerated elsewhere, any purchaser of the Company's common stock
should
also consider the following risk factors:
Risks
Related to the Company's Operations:
We
have a limited operating history and cannot guarantee
profitability.
The
Company acquired its current operations in January of 2006 through
the purchase
of Landbank LLC. Landbank, LLC itself commenced operations during the
second
quarter of 2005. At this stage, the Company has only a limited operating
history
upon which an evaluation of performance and future prospects can be
made. There
can be no assurance that the Company will be able to continue to generate
revenues in the future.
The
Company is subject to all of the business risks associated with a new
enterprise, including, but not limited to, the risk of unforeseen capital
requirements, lack of fully-developed products, failure of market acceptance,
failure to establish time proven business relationships, and a competitive
disadvantage vis-a-vis larger and more established companies.
Further,
the Company has entered into an agreement with its principal stockholder
whereby, upon stockholder approval, the Company would divest itself
of its
operating subsidiary Landbank, LLC. The Company expects that the
transaction will close by the end of 2007 or in the first quarter
of
2008. If the transaction is consummated, the Company would no longer
engage in its current line of business and the Company at this time
has no
prospects for any new future business.
We
will be a non-operating company seeking a suitable transaction and
may not find
a suitable candidate or transaction.
We
will
commence being a non-operating company with the completion of the foregoing
transaction and will seek a suitable transaction with a private company;
however, we may not find a suitable candidate or transaction. If we
are unable to consummate a suitable transaction we will be forced to
liquidate
and dissolve which will take three years to complete and may result
in our
distributing no cash to our stockholders.
We
will continue to incur the expenses of complying with public company
reporting
requirements.
We
have
an obligation to continue to comply with the applicable reporting requirements
of the Securities Exchange Act of 1934, as amended, even though compliance
with
such reporting requirements is economically burdensome.
In
the event of liquidation, our Board of Directors may at any time turn
management
of the liquidation over to a third party, and our directors may resign
from our
board at that time.
If
we are
unable to find or consummate a suitable private company transaction,
our
directors may at any time turn our management over to a third party
to commence
or complete the liquidation of our remaining assets and distribute
the available
proceeds to our stockholders, and our directors may resign from our
board at
that time. If management is turned over to a third party and our directors
resign from our board, the third party would have sole control over
the
liquidation process, including the sale or distribution of any remaining
assets.
If
we are deemed to be an investment company, we may be subject to substantial
regulation that would cause us to incur additional expenses and reduce
the
amount of assets available for distribution.
If
we
invest our cash and/or cash equivalents in investment securities, we
may be
subject to regulation under the Investment Company Act of 1940. If
we are deemed
to be an investment company under the Investment Company Act because
of our
investment securities holdings, we must register as an investment company
under
the Investment Company Act. As a registered investment company, we
would be
subject to the further regulatory oversight of the Division of Investment
Management of the Securities and Exchange Commission, and our activities
would
be subject to substantial regulation under the Investment Company Act.
Compliance with these regulations would cause us to incur additional
expenses,
which would reduce the amount of assets available for distribution
to our
stockholders. To avoid these compliance costs, we intend to invest
our cash
proceeds in money market funds and government securities, which are
exempt from
the Investment Company Act but which currently provide a very modest
return.
If
we fail to create an adequate contingency reserve for payment of our
expenses
and liabilities, in the event of dissolution, our stockholders could
be held liable for payment to our creditors of each such stockholder’s pro rata
share of amounts owed to the creditors in excess of the contingency
reserve, up
to the amount actually distributed to such stockholder.
In
the
event of dissolution or a distribution of substantially all our assets,
pursuant
to the Delaware General Corporation Law, we will continue to exist
for three
years after the dissolution became effective or for such longer period
as the
Delaware Court of Chancery shall direct, for the purpose of prosecuting
and
defending suits against us and enabling us gradually to close our business,
to
dispose of our property, to discharge our liabilities and to distribute
to our
stockholders any remaining assets. Under the Delaware General Corporation
Law,
in the event we fail to create an adequate contingency reserve for
payment of
our expenses and liabilities during this three-year period, each stockholder
could be held liable for payment to our creditors of such stockholder’s pro rata
share of amounts owed to creditors in excess of the contingency reserve,
up to
the amount actually distributed to such stockholder.
However,
the liability of any stockholder would be limited to the amounts previously
received by such stockholder from us (and from any liquidating trust
or trusts)
in the dissolution. Accordingly, in such event a stockholder could
be required
to return all distributions previously made to such stockholder. In
such event,
a stockholder could receive nothing from us under the plan of dissolution.
Moreover, in the event a stockholder has paid taxes on amounts previously
received, a repayment of all or a portion of such amount could result
in a
stockholder incurring a net tax cost if the stockholder’s repayment of an amount
previously distributed does not cause a commensurate reduction in taxes
payable.
There can be no assurance that any contingency reserve established
by us will be
adequate to cover any expenses and liabilities.
While
we continue our current line of business, we may need to raise capital
in the
future, and if such capital is not available on acceptable terms,
we may have to
curtail or cease operations.
The
Company's current business is dependent in part on being able to acquire
and make available a broad selection of properties. Acquisition of
these
properties requires significant capital expenditure. While the Company
intends
to generate sufficient revenues in the future to fund our acquisitions,
it is
possible that we may need to raise additional capital. Consequently,
we may be
unable to raise sufficient additional capital on terms deemed acceptable.
In
that event, the Company may have to curtail or cease operations and/or
limit the
number of properties maintained in inventory. This could have an adverse
impact
on the Company's ability to effectively compete with other companies,
which are
able to offer customers a broader range of properties. If additional
funds are
raised through the issuance of debt securities or preferred stock,
these
securities could have rights that are senior to the holders of the
common stock,
and any debt securities could contain covenants that would restrict
the
Company's operations. In addition, if the Company raises funds by selling
common
stock or convertible securities, existing stockholders could face dilution
of
their shares.
While
we continue our current line of business, we may be unable to identify
or
acquire suitable properties at a low cost, which could affect our
ability to
generate revenues.
The
Company's ability to generate revenues in its current line of
business is highly dependent on its ability to maintain low acquisition
costs while offering a wide range of suitable properties. There can
be no
assurance that the Company's acquisition teams will be successful
in locating
suitable properties on financially attractive terms.
While
we continue our current line of business, competition for properties
may
increase costs and reduce returns.
The
Company competes to acquire real property with individuals and other
entities
engaged in similar activities. Many of our competitors have greater
financial
resources, and thus, a greater ability to borrow funds and to acquire
properties. Competition for properties may reduce the number of suitable
acquisition opportunities available and may have the effect of increasing
acquisition costs thereby adversely impacting Company
profits.
In
our current line of business we acquire a substantial number of our
properties
through the tax-lien foreclosure process, and may therefore be subject
to
additional costs for eviction and/or clearing title.
When
acquiring properties through the tax-lien foreclosure process, the
property is
deeded to the buyer by the relevant government entity without any warranties
as
to title, and in some instances, subject to a right of the original
owner to
redeem the property within a certain number of days. In addition, the
buyer of
the property remains responsible for any eviction of a prior owner
who remains
in possession of the property. The majority of parcels that we acquire
are
unimproved lots with no owner in possession, and we attempt to perform
adequate
due diligence in connection with the purchase of each piece of property
to
ensure that there are no material liens or encumbrances affecting title
to the
property. We cannot however guarantee that we will not be required
to undertake
eviction or other proceedings in connection with properties purchased
in this
process, or that we will not encounter undisclosed encumbrances. In
the event
such a situation arises, we may incur significant additional acquisition
costs
which may adversely affect our net revenues and/or results of operations.
In
counties where there is a right of redemption, we hold the property
in inventory
until the right has lapsed. The Company does not currently acquire
significant
amounts of properties in counties where such rights exist, however,
if we do,
any exercise of these rights could delay our ability to generate revenues
from
these properties.
In
our current line of business, we may be unable to sell a property,
if or when we
decide to do so, which could delay revenues needed to fund
operations.
The
real
estate market is affected by many factors, such as general economic
conditions,
availability of financing, interest rates, and other factors, including
supply
and demand, that are beyond the Company's control. The Company cannot
predict
whether it will be able to sell any property for the price or on the
terms that
it sets or whether any price or other terms offered by a prospective
purchaser
would be acceptable. The Company cannot predict the length of time
needed to
find a willing purchaser and to close the sale of a property.
The
Company may be required to expend funds to correct defects or to make
improvements before a property can be sold. The Company cannot make
any
assurance that it will have funds available to correct such defects
or to make
such improvements.
Our
principal stockholders have broad control over our
operations.
The
Company's principal stockholders beneficially own approximately 83%
of the
issued and outstanding share capital of the Company, with one stockholder
owning
approximately 55% of our outstanding stock. As a result, these stockholders
are
able to exercise significant influence over the Company, including
the election
of directors, amendments to the certificate of incorporation or by-laws
of the
Company, the approval of mergers or other business combinations,
and the sale or
purchase of material assets. The interests of these stockholders
in deciding
these matters and the factors they consider in making such decisions
could be
different from the interests of the Company's other stockholders.
We
may lose key personnel and/or be unable to maintain current relationships
with
affiliates upon which we depend.
The
Company's success depends to a significant degree upon the continued
relationship with certain of its affiliates and the contribution
of its
executive management team. During the third quarter of 2007 our President
and Chief Executive Officer each resigned. Due to the loss of these
executives and any other of the Company's executives, we could lose access
to important affiliate services and/or acquisition or sales channels,
which
could adversely affect our operations and/or financial condition.
Four
of
the Company’s original five directors have recently resigned, two of which were
replaced with independent directors. Although we believe that the
Company will
benefit from having an independent board, we cannot guarantee that
this change
in board composition will not adversely affect the Company's
operations.
We
have
also had significant turnover in our corporate officers. Effective
November 15, 2007, John Genesi, our Chief Financial Officer will
resign, to be
replaced on an interim basis by Eric Stoppenhagen, our Interim President
and
Secretary.
In
our current line of business we are subject to general real estate
risks.
The
Company is subject to risks generally associated with the ownership
of real
estate, including:
|
·
|
changes
in general or local economic
conditions;
|
|
·
|
changes
in supply of or demand for similar or competing properties
in the
area;
|
|
·
|
bankruptcies,
financial difficulties or lease defaults by
customers;
|
|
·
|
changes
in interest rates and availability of permanent mortgage
financing that
may render the sale of a property difficult or unattractive
or otherwise
reduce the returns to stockholders;
|
|
·
|
changes
in governmental rules, regulations, and fiscal policies,
including changes
in tax, real estate, environmental, and zoning
laws;
|
|
·
|
periods
of high interest rates and tight money
supply.
|
The
Company's operations can be negatively affected by the occurrence of
any of
these or other factors beyond the Company's control.
We
may be subject to litigation, which could divert substantial time and
money from
our business.
The
Company may be subject to claims from customers or other third parties.
If such
parties are successful, they may be able to obtain injunctive or other
equitable
relief, which could effectively diminish the Company's ability to further
acquire, subdivide, and sell properties, and could result in the award
of
substantial damages. Management may be required to devote substantial
time and
energy in defending any such claims.
Risks
Related to the Ownership of the Company's Stock:
There
is a limited market for the buying/selling of the Company's common
stock. If a
substantial and sustained market for the Company's common stock does
not
develop, the Company's stockholders may have difficulty selling, or
be unable to
sell, their shares.
The
Company's common stock is presently traded on the OTC Bulletin Board
(“OTCBB”),
and currently there is only a limited market for the Company's common
stock and
there can be no assurance that this market will be maintained or broadened.
If a
substantial and sustained market for the Company's common stock does
not
develop, the Company's stockholders may have difficulty selling, or
be unable to
sell, their shares. Accordingly, we cannot provide any assurance that
we will be
able to develop a substantial and sustained market for the Company's
common
stock.
Substantial
sales of the Company's common stock could cause the stock price to
fall.
As
of
November 1, 2007, the Company had 9,928,664 shares of common stock
outstanding
of which approximately 8,922,780 shares are considered "restricted
securities"
as that term is defined under Rule 144 promulgated under the Securities
Act of
1933 ("'33 Act"). These restricted shares are eligible for sale under
Rule 144
at various times. No prediction can be made as to the affect, if any,
that the
sales of shares of common stock or the availability of such shares
for sale will
have on the market prices prevailing from time to time. Nevertheless,
the
possibility that substantial amounts of the Company's common stock
may be sold
in the public market may adversely affect prevailing market prices
for the
common stock and could impair the Company's ability to raise capital
through the
sale of its equity securities.
The
Company has a significant number of shares authorized but unissued.
These shares
may be issued without stockholder approval. Significant issuances of
stock would
dilute the percentage ownership of the Company's current stockholders
and could
likely have an adverse impact on the market price of the common
stock.
As
of
November 1, 2007, the Company had an aggregate of 90,071,336 shares
of common
stock authorized but unissued. The Company has reserved 3,000,000
shares for issuance under the Company's 2006 Stock Incentive Plan and an
additional 79,311,256 shares have been reserved for issuance to Landbank
Acquisition LLC in connection with the Company’s divestiture of its operating
subsidiary. All remaining shares of common stock may be issued without any
action or approval by the Company's stockholders. Any such shares
issued would
further dilute the percentage ownership of the Company's current
stockholders
and would likely have an adverse impact on the market price of the
common
stock.
The
Company does not intend to pay dividends in the near
future.
The
Company's board of directors determines whether to pay dividends on
the
Company's issued and outstanding shares. The declaration of dividends
will
depend upon the Company's future earnings, its capital requirements,
its
financial condition, and other relevant factors. The Company's Board
of
Directors does not intend to declare any dividends on the Company's
shares for
the foreseeable future. The Company anticipates that it will retain
any earnings
to finance the growth of its business and for general corporate
purposes.
Our
securities are currently classified as a "Penny Stock" which may limit
our
stockholders' ability to sell their securities.
The
price
of our common stock is currently below $5.00 per share, and is therefore
considered "penny stock" under Rule 3a51-1 of the '34 Act. As such,
additional
sales practice requirements are imposed on broker-dealers who sell
to persons
other than established customers and "accredited investors" as defined
in Rule
501 of Regulation D as promulgated under the '33 Act. The prerequisites
required
by broker-dealers engaged in transactions involving "penny stocks"
have
discouraged, or even barred, many brokerage firms from soliciting orders
for
certain low priced stocks.
With
respect to the trading of penny stocks, broker-dealers have an obligation
to
satisfy certain special sales practice requirements pursuant to Rule
15g-9 of
the '34 Act, including a requirement that they make an individualized
written
suitability determination for the purchase and receive the purchaser's
written
consent prior to the transaction.
Broker-dealers
have additional disclosure requirements as set forth in the Securities
Enforcement Act Remedies and Penny Stock Reform Act of 1990. These
disclosure
requirements include the requirement for a broker-dealer, prior to
a transaction
in a penny stock, to deliver a standardized risk disclosure document
that
provides information about penny stocks and the risks of the penny
stock
market.
Additionally,
broker-dealers must provide customers with current bid and offer quotations
for
penny stocks, the compensation payable to the broker-dealer and its
salesperson
in the transaction, and the monthly account statements showing the
market value
of each penny stock held in a customer's account.
Accordingly,
the market liquidity of the Company's common stock and the ability
of any
present and prospective stockholder-investors to sell their securities
in the
secondary market is limited due to the above penny stock regulations
and the
associated broker-dealer requirements.
Stockholders
should also be aware that, according to SEC, the market for penny
stocks has
suffered in recent years from patterns of fraud and abuse. Such patterns
include
(i) control of the market for the security by one or a few broker-dealers
that
are often related to the promoter or issuer; (ii) manipulation of
prices through
prearranged matching of purchases and sales and false and misleading
press
releases; (iii) “boiler room” practices involving high-pressure sales tactics
and unrealistic price projections by inexperienced sales persons;
(iv) excessive
and undisclosed bid-ask differentials and markups by selling broker-dealers;
and
(v) the wholesale dumping of the same securities by promoters and
broker-dealers
after prices have been manipulated to a desired level, resulting
in investor
losses. Our management is aware of the abuses that have occurred
historically in
the penny stock market. Although we do not expect to be in a position
to dictate
the behavior of the market or of broker-dealers who participate in
the market,
management will strive within the confines of practical limitations
to prevent
the described patterns from being established with respect to our
securities.
Our
Interim President and Chief Financial Officer (our principal executive
officer
and principal financial officer, respectively) conducted an evaluation
of the
effectiveness of our disclosure controls and procedures, as defined by
paragraph (e) of Exchange Act Rules 13a-15 or 15d-15, as of the end
of the
period covered by this quarterly report on Form 10-QSB. Based on this
evaluation, our Interim President and our Chief Financial Officer have
concluded
that, as of the end of the period covered by this quarterly report
on Form
10-QSB, our disclosure controls and procedures were effective. In addition,
there was no change in our internal control over financial reporting
that
occurred during the period covered by this quarterly report on Form
10-QSB that
has materially affected, or is reasonably likely to materially affect,
our
internal control over financial reporting.
PART
II. OTHER INFORMATION
In
May
2007, a dispute arose involving the proposed sale and purchase of certain
real
property owned by Landbank, LLC to NRLL East, LLC, under a contract
dated March
6, 2007. In the Company’s view, this contract was illusory and did not obligate
NRLL East, LLC to perform its obligations under the contract. Accordingly,
in
May 2007 the Company filed a complaint in the Los Angeles Superior
Court seeking
declaratory relief and rescission of the contract on the basis of fraud
and
breach of oral contract. On May 29, 2007, NRLL East, LLC filed a complaint
in
the 6th
Judicial District Court of Nevada seeking specific performance and
breach of
contract, and recorded a lis pendens on the subject real property.
On July 9,
2007, the Company reached a proposed agreement with NRLL East, LLC
regarding
this matter. Per the terms of the proposed settlement, the Company
will pay NRLL
East, LLC a one-time cash payment of $50,000 as final resolution to
the disputed
matter. The Company paid NRLL East, LLC the $50,000 in August 2007,
at which
time NRLL East, LLC terminated/released all claims against the
Company.
None.
None.
None.
None.
Exhibits
|
No.
|
|
Description
|
|
2.1
|
Securities
Exchange Agreement dated November 1, 2007 by and among
Landbank Group,
Inc., Landbank Acquisition LLC and Family Products LLC.
(1)
|
|
|
10.1
|
Consulting,
Confidentiality and Proprietary Rights Agreement between
Landbank Group,
Inc. and Venor, Inc., dated September 27, 2007.
|
|
|
10.2
|
Form
of Option Termination Agreement.
|
|
|
10.3
|
Letter
of Termination, dated September 12, 2007, between Landbank
Group, Inc. and
Aziz Munir and Ray Dirks
|
|
|
10.4
|
Letter
of Termination, dated September 12, 2007, between Landbank
Group, Inc. and
Investment Capital Researchers, Inc.
|
|
|
10.5
|
Form
of Demand Promissory Note issued by Landbank, LLC.
|
|
|
10.6
|
Form
of Assignment of Promissory Note, agreed to by Landbank,
LLC.
|
|
|
31.1
|
Certification
of Principal Executive Officers Pursuant to Section 302
of the
Sarbanes-Oxley Act of 2002.
|
|
|
31.2
|
Certification
of Principal Financial Officer Pursuant to Section 302
of the
Sarbanes-Oxley Act of 2002.
|
|
|
32.1
|
Certification
of Principal Executive Officers Pursuant to Section 906
of the
Sarbanes-Oxley Act of 2002.
|
|
|
32.2
|
Certification
of Principal Financial Officers Pursuant to Section 906
of the
Sarbanes-Oxley Act of 2002.
|
|
(1) Incorporated
by reference to Exhibit 2.1 to Current Report on Form 8-K filed
on November 7,
2007.
In
accordance with the requirements of the Exchange Act, the registrant
caused this
report to be signed on its behalf by the undersigned, there unto duly
authorized.
| LANDBANK GROUP, INC. | |||
|
Date:
November 14, 2007
|
By:
|
/s/ Eric Stoppenhagen | |
|
Eric
Stoppenhagen
|
|||
|
President
|
|||
35