AEI Income & Growth Fund 26 LLC - FORM 10-Q

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EX-32 - AEI Income & Growth Fund 26 LLC	ex32-26.htm
EX-31.1 - AEI Income & Growth Fund 26 LLC	ex31-126.htm
EX-31.2 - AEI Income & Growth Fund 26 LLC	ex31-226.htm
EXCEL - IDEA: XBRL DOCUMENT - AEI Income & Growth Fund 26 LLC	Financial_Report.xls

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended: June 30, 2011

Commission File Number: 000-51823

AEI INCOME & GROWTH FUND 26 LLC

(Exact name of registrant as specified in its charter)

State of Delaware		41-2173048
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

30 East 7th Street, Suite 1300 St. Paul, Minnesota 55101		(651) 227-7333
(Address of principal executive offices)		(Registrant’s telephone number)

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. x Yes o No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). o Yes o No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

o Large accelerated filer	o Accelerated filer
o Non-accelerated filer	x Smaller reporting company

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). o Yes x No

AEI INCOME & GROWTH FUND 26 LLC

INDEX

				Page
Part I – Financial Information

	Item 1.	Financial Statements (unaudited):

		Balance Sheet as of June 30, 2011 and December 31, 2010		3

		Statements for the Periods ended June 30, 2011 and 2010:

			Income	4

			Cash Flows	5

			Changes in Members' Equity (Deficit)	6

		Notes to Financial Statements		7 - 8

	Item 2.	Management's Discussion and Analysis of Financial
			Condition and Results of Operations	9 - 12

	Item 3.	Quantitative and Qualitative Disclosures About Market Risk		12

	Item 4.	Controls and Procedures		12

Part II – Other Information

	Item 1.	Legal Proceedings		12

	Item 1A.	Risk Factors		12

	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		13

	Item 3.	Defaults Upon Senior Securities		13

	Item 5.	Other Information		13

	Item 6.	Exhibits		13

Signatures				14

Page 2 of 14

AEI INCOME & GROWTH FUND 26 LLC

BALANCE SHEET

ASSETS

	June 30,			December 31,
	2011			2010
Current Assets:
Cash	$	361,196		$	327,898

Real Estate Held for Investment:
Land		5,991,984			5,991,984
Buildings and Equipment		9,384,552			9,384,552
Accumulated Depreciation		(1,601,288	)		(1,413,596	)
Real Estate Held for Investment, Net		13,775,248			13,962,940
Total Assets	$	14,136,444		$	14,290,838

LIABILITIES AND MEMBERS’ EQUITY

	June 30,			December 31,
	2011			2010
Current Liabilities:
Payable to AEI Fund Management, Inc.	$	24,379		$	11,813
Distributions Payable		236,083			236,083
Unearned Rent		47,273			25,796
Total Current Liabilities		307,735			273,692

Members’ Equity (Deficit):
Managing Members		(49,548	)		(43,895	)
Limited Members, $10 per Unit; 10,000,000 Units authorized; 1,832,736 Units issued; 1,827,736 Units outstanding		13,878,257			14,061,041
Total Members’ Equity		13,828,709			14,017,146
Total Liabilities and Members’ Equity	$	14,136,444		$	14,290,838

The accompanying Notes to Financial Statements are an integral part of this statement.

Page 3 of 14

AEI INCOME & GROWTH FUND 26 LLC

STATEMENT OF INCOME

	Three Months Ended June 30,				Six Months Ended June 30,
	2011		2010		2011		2010

Rental Income	$	285,715	$	285,715	$	571,431	$	571,431

Expenses:
LLC Administration – Affiliates		42,163		41,672		82,519		83,086
LLC Administration and Property Management – Unrelated Parties		8,479		7,919		18,482		17,544
Depreciation		93,846		93,846		187,692		187,692
Total Expenses		144,488		143,437		288,693		288,322

Operating Income		141,227		142,278		282,738		283,109

Other Income:
Interest Income		454		557		990		1,224

Net Income	$	141,681	$	142,835	$	283,728	$	284,333

Net Income Allocated:
Managing Members	$	4,251	$	4,285	$	8,512	$	8,530
Limited Members		137,430		138,550		275,216		275,803
Total	$	141,681	$	142,835	$	283,728	$	284,333

Net Income per LLC Unit	$	.08	$	.08	$	.15	$	.15

Weighted Average Units Outstanding – Basic and Diluted		1,827,736		1,827,736		1,827,736		1,830,236

The accompanying Notes to Financial Statements are an integral part of this statement.

Page 4 of 14

AEI INCOME & GROWTH FUND 26 LLC

STATEMENT OF CASH FLOWS

	Six Months Ended June 30,
	2011			2010
Cash Flows from Operating Activities:
Net Income	$	283,728		$	284,333

Adjustments to Reconcile Net Income To Net Cash Provided by Operating Activities:
Depreciation		187,692			187,692
Increase (Decrease) in Payable to AEI Fund Management, Inc.		12,566			(2,803	)
Increase (Decrease) in Unearned Rent		21,477			8,304
Total Adjustments		221,735			193,193
Net Cash Provided By Operating Activities		505,463			477,526

Cash Flows from Financing Activities:
Distributions Paid to Members		(472,165	)		(472,354	)
Redemption Payments		0			(39,407	)
Net Cash Used For Financing Activities		(472,165	)		(511,761	)

Net Increase (Decrease) in Cash		33,298			(34,235	)

Cash, beginning of period		327,898			375,652

Cash, end of period	$	361,196		$	341,417

The accompanying Notes to Financial Statements are an integral part of this statement.

Page 5 of 14

AEI INCOME & GROWTH FUND 26 LLC

STATEMENT OF CHANGES IN MEMBERS' EQUITY (DEFICIT)

	Managing Members			Limited Members			Total			Limited Member Units Outstanding

Balance, December 31, 2009	$	(31,521	)	$	14,461,132		$	14,429,611			1,832,736.0

Distributions Declared		(14,168	)		(458,092	)		(472,260	)

Redemption Payments		(1,182	)		(38,225	)		(39,407	)		(5,000.0	)

Net Income		8,530			275,803			284,333

Balance, June 30, 2010	$	(38,341	)	$	14,240,618		$	14,202,277			1,827,736.0


Balance, December 31, 2010	$	(43,895	)	$	14,061,041		$	14,017,146			1,827,736.0

Distributions Declared		(14,165	)		(458,000	)		(472,165	)

Net Income		8,512			275,216			283,728

Balance, June 30, 2011	$	(49,548	)	$	13,878,257		$	13,828,709			1,827,736.0

The accompanying Notes to Financial Statements are an integral part of this statement.

Page 6 of 14

AEI INCOME & GROWTH FUND 26 LLC

NOTES TO FINANCIAL STATEMENTS

JUNE 30, 2011

(1) The condensed statements included herein have been prepared by the registrant, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission, and reflect all adjustments which are, in the opinion of management, necessary to a fair statement of the results of operations for the interim period, on a basis consistent with the annual audited statements. The adjustments made to these condensed statements consist only of normal recurring adjustments. Certain information, accounting policies, and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although the registrant believes that the disclosures are adequate to make the information presented not misleading. It is suggested that these condensed financial statements be read in conjunction with the financial statements and the summary of significant accounting policies and notes thereto included in the registrant's latest annual report on Form 10-K.

(2) Organization –

AEI Income & Growth Fund 26 LLC (“Company”), a Limited Liability Company, was formed on March 14, 2005 to acquire and lease commercial properties to operating tenants. The Company's operations are managed by AEI Fund Management XXI, Inc. (“AFM”), the Managing Member. Robert P. Johnson, the President and sole director of AFM, serves as the Special Managing Member. AFM is a wholly owned subsidiary of AEI Capital Corporation of which Mr. Johnson is the majority shareholder. AEI Fund Management, Inc. (“AEI”), an affiliate of AFM, performs the administrative and operating functions for the Company.

The terms of the offering called for a subscription price of $10 per LLC Unit, payable on acceptance of the offer. The Company commenced operations on April 3, 2006 when minimum subscriptions of 150,000 LLC Units ($1,500,000) were accepted. The offering terminated October 19, 2007, when the extended offering period expired. The Company received subscriptions for 1,832,736 Units. Under the terms of the Operating Agreement, the Limited Members and Managing Members contributed funds of $18,327,360 and $1,000, respectively. The Company shall continue until December 31, 2055, unless dissolved, terminated and liquidated prior to that date.

During operations, any Net Cash Flow, as defined, which the Managing Members determine to distribute will be distributed 97% to the Limited Members and 3% to the Managing Members. Distributions to Limited Members will be made pro rata by Units.

Any Net Proceeds of Sale, as defined, from the sale or financing of properties which the Managing Members determine to distribute will, after provisions for debts and reserves, be paid in the following manner: (i) first, 99% to the Limited Members and 1% to the Managing Members until the Limited Members receive an amount equal to: (a) their Adjusted Capital Contribution plus (b) an amount equal to 6.5% of their Adjusted Capital Contribution per annum, cumulative but not compounded, to the extent not previously distributed from Net Cash Flow; (ii) any remaining balance will be distributed 90% to the Limited Members and 10% to the Managing Members. Distributions to the Limited Members will be made pro rata by Units.

Page 7 of 14

AEI INCOME & GROWTH FUND 26 LLC

NOTES TO FINANCIAL STATEMENTS

(Continued)

(2) Organization – (Continued)

For tax purposes, profits from operations, other than profits attributable to the sale, exchange, financing, refinancing or other disposition of property, will be allocated 97% to the Limited Members and 3% to the Managing Members. Net losses from operations will be allocated 99% to the Limited Members and 1% to the Managing Members.

For tax purposes, profits arising from the sale, financing, or other disposition of property will be allocated in accordance with the Operating Agreement as follows: (i) first, to those Members with deficit balances in their capital accounts in an amount equal to the sum of such deficit balances; (ii) second, 99% to the Limited Members and 1% to the Managing Members until the aggregate balance in the Limited Members' capital accounts equals the sum of the Limited Members' Adjusted Capital Contributions plus an amount equal to 6.5% of their Adjusted Capital Contributions per annum, cumulative but not compounded, to the extent not previously allocated; (iii) third, the balance of any remaining gain will then be allocated 90% to the Limited Members and 10% to the Managing Members. Losses will be allocated 99% to the Limited Members and 1% to the Managing Members.

The Managing Members are not required to currently fund a deficit capital balance. Upon liquidation of the Company or withdrawal by a Managing Member, the Managing Members will contribute to the Company an amount equal to the lesser of the deficit balances in their capital accounts or 1.01% of the total capital contributions of the Limited Members over the amount previously contributed by the Managing Members.

(3) Payable to AEI Fund Management, Inc. –

AEI Fund Management, Inc. performs the administrative and operating functions for the Company. The payable to AEI Fund Management represents the balance due for those services. This balance is non-interest bearing and unsecured and is to be paid in the normal course of business.

(4) Fair Value Measurements –

As of June 30, 2011, the Company had no assets or liabilities measured at fair value on a recurring basis or nonrecurring basis.

Page 8 of 14

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

This section contains "forward-looking statements" which represent management's expectations or beliefs concerning future events, including statements regarding anticipated application of cash, expected returns from rental income, growth in revenue, the sufficiency of cash to meet operating expenses, rates of distribution, and other matters. These, and other forward-looking statements, should be evaluated in the context of a number of factors that may affect the Company’s financial condition and results of operations, including the following:

—

Market and economic conditions which affect the value of the properties the Company owns and the cash from rental income such properties generate;

—

the federal income tax consequences of rental income, deductions, gain on sales and other items and the effects of these consequences for Members;

—

resolution by the Managing Members of conflicts with which they may be confronted;

—

the success of the Managing Members of locating properties with favorable risk return characteristics;

—

the effect of tenant defaults; and

—

the condition of the industries in which the tenants of properties owned by the Company operate.

Application of Critical Accounting Policies

The preparation of the Company’s financial statements requires management to make estimates and assumptions that may affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. Management evaluates these estimates on an ongoing basis, including those related to the carrying value of investments in real estate and the allocation by AEI Fund Management, Inc. of expenses to the Company as opposed to other funds they manage.

The Company purchases properties and records them in the financial statements at cost (not including acquisition expenses). The Company tests long-lived assets for recoverability when events or changes in circumstances indicate that the carrying value may not be recoverable. For properties the Company will hold and operate, management determines whether impairment has occurred by comparing the property’s probability-weighted future undiscounted cash flows to its current carrying value. For properties held for sale, management determines whether impairment has occurred by comparing the property’s estimated fair value less cost to sell to its current carrying value. If the carrying value is greater than the net realizable value, an impairment loss is recorded to reduce the carrying value of the property to its net realizable value. Changes in these assumptions or analysis may cause material changes in the carrying value of the properties.

AEI Fund Management, Inc. allocates expenses to each of the funds they manage primarily on the basis of the number of hours devoted by their employees to each fund’s affairs. They also allocate expenses at the end of each month that are not directly related to a fund’s operations based upon the number of investors in the fund and the fund’s capitalization relative to other funds they manage. The Company reimburses these expenses subject to detailed limitations contained in the Operating Agreement.

Page 9 of 14

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS. (Continued)

Management of the Company has discussed the development and selection of the above accounting estimates and the management discussion and analysis disclosures regarding them with the managing member of the Company.

Results of Operations

For the six months ended June 30, 2011 and 2010, the Company recognized rental income of $571,431 during each period. Based on the scheduled rent for the properties owned as of July 31, 2011, the Company expects to recognize rental income of approximately $1,149,000 in 2011.

For the six months ended June 30, 2011 and 2010, the Company incurred LLC administration expenses from affiliated parties of $82,519 and $83,086, respectively. These administration expenses include costs associated with the management of the properties, processing distributions, reporting requirements and communicating with the Limited Members. During the same periods, the Company incurred LLC administration and property management expenses from unrelated parties of $18,482 and $17,544, respectively. These expenses represent direct payments to third parties for legal and filing fees, direct administrative costs, outside audit costs, taxes, insurance and other property costs.

For the six months ended June 30, 2011 and 2010, the Company recognized interest income of $990 and $1,224, respectively.

Management believes inflation has not significantly affected income from operations. Leases may contain rent increases, based on the increase in the Consumer Price Index over a specified period, which will result in an increase in rental income over the term of the leases. Inflation also may cause the real estate to appreciate in value. However, inflation and changing prices may have an adverse impact on the operating margins of the properties' tenants, which could impair their ability to pay rent and subsequently reduce the Net Cash Flow available for distributions.

Liquidity and Capital Resources

During the six months ended June 30, 2011, the Company's cash balances increased $33,298 as a result of cash generated from operating activities in excess of distributions paid to the Members. During the six months ended June 30, 2010, the Company's cash balances decreased $34,235 as a result of distributions and redemption payments paid to the Members in excess of cash generated from operating activities.

Net cash provided by operating activities increased from $477,526 in 2010 to $505,463 in 2011 mainly as a result of net timing differences in the collection of payments from the tenants and the payment of expenses.

Page 10 of 14

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS. (Continued)

The Company's primary use of cash flow, other than investment in real estate, is distribution and redemption payments to Members. The Company declares its regular quarterly distributions before the end of each quarter and pays the distribution in the first week after the end of each quarter. The Company attempts to maintain a stable distribution rate from quarter to quarter. Redemption payments are paid to redeeming Members on a semi-annual basis.

For the six months ended June 30, 2011 and 2010, the Company declared distributions of $472,165 and $472,260, respectively. The Limited Members received distributions of $458,000 and $458,092 and the Managing Members received distributions of $14,165 and $14,168 for the periods, respectively.

The Company may acquire Units from Limited Members who have tendered their Units to the Company. Such Units may be acquired at a discount. The Company will not be obligated to purchase in any year more than 2% of the total number of Units outstanding on January 1 of such year. In no event shall the Company be obligated to purchase Units if, in the sole discretion of the Managing Member, such purchase would impair the capital or operation of the Company.

During the first six months of 2011, the Company did not redeem any Units from the Limited Members. On April 1, 2010, one Limited Member redeemed a total of 5,000 Units for $38,225 in accordance with the Operating Agreement. The Company acquired these Units using Net Cash Flow from operations. The redemptions increase the remaining Limited Members’ ownership interest in the Company. As a result of this redemption payment and pursuant to the Operating Agreement, the Managing Members received distributions of $1,182 in 2010.

The continuing rent payments from the properties should be adequate to fund continuing distributions and meet other obligations on both a short-term and long-term basis.

The Economy and Market Conditions

The impact of conditions in the current economy, including the turmoil in the credit markets, has adversely affected many real estate investment funds. However, the absence of mortgage financing on the Company’s properties eliminates the risks of foreclosure and debt-refinancing that can negatively impact the value and distributions of leveraged real estate investment funds. Nevertheless, a prolonged economic downturn may adversely affect the operations of the Company’s tenants and their cash flows. If a tenant were to default on its lease obligations, the Company’s income would decrease, its distributions would likely be reduced and the value of its properties might decline.

The Company’s plan is to periodically sell properties to generate capital gains that would be included in the Company’s regular quarterly distributions and to make special distributions on occasion. Beginning in the fourth quarter of 2008, general economic conditions caused the volume of property sales to slow dramatically for all real estate sellers. Until such time as economic conditions allow the Company to begin selling properties at attractive prices, quarterly distributions will reflect the distribution of net core rental income and capital reserves, if any. Distribution rates in 2011 are expected to be consistent with distribution rates in 2010.

Page 11 of 14

ITEM 3. QUANTITATIVE & QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Not required for a smaller reporting company.

ITEM 4. CONTROLS AND PROCEDURES.

(a) Disclosure Controls and Procedures.

Under the supervision and with the participation of management, including its President and Chief Financial Officer, the Managing Member of the Company evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”)). Based upon that evaluation, the President and Chief Financial Officer of the Managing Member concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were effective in ensuring that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in applicable rules and forms and that such information is accumulated and communicated to management, including the President and Chief Financial Officer of the Managing Member, in a manner that allows timely decisions regarding required disclosure.

(b) Changes in Internal Control Over Financial Reporting.

During the most recent period covered by this report, there has been no change in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II – OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

There are no material pending legal proceedings to which the Company is a party or of which the Company's property is subject.

ITEM 1A. RISK FACTORS.

Not required for a smaller reporting company.

Page 12 of 14

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES & USE OF PROCEEDS.

(a) None.

(b) Not applicable.

(c) Pursuant to Section 7.7 of the Operating Agreement, each Limited Member has the right to present Units to the Company for purchase by submitting notice to the Managing Member during January or July of each year. The purchase price of the Units is equal to 85% of the net asset value per Unit, as of the first business day of January or July of each year, as determined by the Managing Member in accordance with the provisions of the Operating Agreement. The purchase price is equal to 100% of the net asset value per Unit in the case of Units of a deceased investor, who purchased the Units in the initial offering and who is a natural person, including Units held by an investor that is an IRA or other qualified plan for which the deceased person was the primary beneficiary, or Units held by an investor that is a grantor trust for which the deceased person was the grantor.

Units tendered to the Company during January and July are redeemed on April 1st and October 1st, respectively, of each year subject to the following limitations. The Company will not be obligated to purchase in any year more than 2% of the total number of Units outstanding on January 1 of such year. In no event shall the Company be obligated to purchase Units if, in the sole discretion of the Managing Member, such purchase would impair the capital or operation of the Company. During the period covered by this report, the Company did not purchase any Units.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

None.

ITEM 5. OTHER INFORMATION.

None.

ITEM 6. EXHIBITS.

31.1	Certification of Chief Executive Officer of Managing Member pursuant to Rule 15d-14(a)(17 CFR 240.15d-14(a)) and Section 302 of the Sarbanes-Oxley Act of 2002.

31.2	Certification of Chief Financial Officer of Managing Member pursuant to Rule 15d-14(a)(17 CFR 240.15d-14(a)) and Section 302 of the Sarbanes-Oxley Act of 2002.

32	Certification of Chief Executive Officer and Chief Financial Officer of Managing Member pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

Page 13 of 14

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Dated: August 12, 2011	AEI Income & Growth Fund 26 LLC
	By:	AEI Fund Management XXI, Inc.
	Its:	Managing Member



	By:	/s/ROBERT P JOHNSON
		Robert P. Johnson
		President
		(Principal Executive Officer)



	By:	/s/PATRICK W KEENE
		Patrick W. Keene
		Chief Financial Officer
		(Principal Accounting Officer)

Page 14 of 14

AEI Income & Growth Fund 26 LLC - FORM 10-Q - August 12, 2011

Attached files

AEI Income & Growth Fund 26 LLC Reports