NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 –
ORGANIZATION AND DESCRIPTION OF BUSINESS
Alpha Investment Inc, formerly GoGo Baby,
Inc. (the “Company”) was incorporated on February 22, 2013 under the laws of the State of Delaware.
On January 31, 2019, the Company, through Jersey
Walk Phase I, LLC, entered into a Sale of Membership Interest Agreement (the “Purchase Agreement”) with CMT Developers
LLC (“CMT”). Pursuant to the Purchase Agreement, the Company acquired 100% of CMT’s membership interests,
in exchange for the issuance to CMT of 3,000,000 shares of common stock. During the due diligence on the refinancing of the
property, the Company learned that certain of the representations and warranties of CMT in the Purchase Agreement with respect
to the property were incorrect in various material respects. Based on the foregoing, effective June 7, 2019, the Company rescinded
the Purchase Agreement in accordance with its terms. As of June 7, 2019, the Company deconsolidated CMT, recognizing a gain on
deconsolidation of $316,774. The assets, liabilities and equity related to CMT, resulting in the gain on deconsolidation are summarized as follows:
|
Note Payable
|
|
$
|
15,500,000
|
|
|
Accrued Interest
|
|
|
232,500
|
|
|
Deferred Income
|
|
|
576,774
|
|
|
Common Stock Returned
|
|
|
29,222,500
|
|
|
Real Estate
|
|
|
(44,800,000
|
)
|
|
Prepaid Expenses
|
|
|
(105,000
|
)
|
|
Construction Loan Advances
|
|
|
(310,000
|
)
|
|
Gain on Deconsolidation
|
|
$
|
316,774
|
|
On March 11, 2019, the Company, through
a newly formed LLC or Special Purpose Vehicle “SPV” called Alpha Mortgage Notes I, LLC executed an operating
agreement with Alameda Partners LLC. Alameda Partners is a Utah Limited Liability Company made a capital contribution of
$1,000,000, which was paid to the Company, for 10% ownership of the SPV, and will be the managing member. The capital
shall be used to implement the strategy of acquiring commercial real estate performing notes and support other related growth
initiatives and assets acquisitions for the Company of which is positioning for its up-listing to the NYSE. The Members of
Alameda Partners LLC have decades of experiences in the commercial real estate industry as property developers, owners, and
managers and currently holds over $50-million in commercial real estate assets. They have been appointed as the
Managing Members of the SPV, while ALPC controls and holds 90% ownership. In exchange for its 90% interest in the SPV,
the Company is required to contribute 4,015,667 shares of common stock for the purchase of performing notes for the SPV. The
special purpose vehicle was organized to acquire the membership interests, develop, own, hold, sell, lease, transfer,
exchange, re-lend, manage and operate the underlying assets and conduct activities related thereto the ownership of
commercial real estate mortgage notes and REO’s. The initial $1,000,0000 was recorded as additional paid in capital on
the accompanying condensed consolidated balance sheet. Alameda Partner is entitled to monthly distributions in cash and stock
equal to $10,000. For the six months ended June 30, 2019, the Company has recorded $40,000 of distributions as reductions to
additional paid in capital. Such amounts have not been paid but have been accrued and included in Distributions Payable
on the attached condensed consolidated balance sheet as of June 30, 2019. As of June 30, 2019, Alpha Mortgage Notes I, LLC
has not completed any transactions.
NOTE 2 –
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
In the opinion of the Company, the
accompanying unaudited condensed consolidated financial statements are prepared in accordance with instructions for Form 10-Q
and Article 8 of Regulation S-X, include all adjustments (consisting only of normal recurring accruals) which we considered as
necessary for a fair presentation of the results for the periods presented. Certain information and footnote disclosures
normally included in the financial statements prepared in accordance with accounting principles generally accepted in the
United States of America have been condensed or omitted. It is suggested that these condensed financial statements be read
in conjunction with the Company's Annual Report on Form 10-K for the year ended December 31, 2018. The results of operations
for the three and six months ended June 30, 2019 are not necessarily indicative of the results to be expected for future
periods or the full year.
Principles of Consolidation
The condensed
consolidated financial statements include the accounts of the Company, Alpha Mortgage Notes I, LLC, which is controlled by
the Company through its 90% ownership interest, and Paris Med CP-LLC (“Paris Med”), variable interest entity for which
the Company is deemed to be the primary beneficiary, (collectively, the “Company”). All significant intercompany
balances and transactions have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in
conformity with accounting principles generally accepted in the United States of America 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 periods presented.
The Company is required to make judgments and estimates about the effect of matters that are inherently uncertain. The Company
regularly evaluates estimates and assumptions related to the valuation of the allowance for loan losses, loss contingencies, useful
life and recoverability of long-lived assets, deferred income tax asset valuations and loss contingences. The Company bases its
estimates and assumptions on current facts, historical experience and various other factors that it believes to be reasonable under
the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities
and the accrual of costs and expenses that are not readily apparent from other sources. Although, we believe our judgments and
estimates are appropriate, actual future results may be different; if different assumptions or conditions were to prevail, the
results could be materially different from our reported results.
Cash and Cash Equivalents
Cash and cash equivalents include cash, bank
and short-term, highly liquid investments with maturities of three months or less at the time of acquisition. As of June 30, 2019,
the Company had no cash equivalents.
Restricted Cash Held in Escrow
The Company has $2,500,000 of restricted cash
held in escrow from the sale of common stock to an investor that has the right to require the Company to repurchase the common
stock for $2,500,000 through September 2019.
Loans Receivable, net and Allowance for Losses
The Company records its investments in loans
receivable at cost less unamortized costs of issuance and deferred origination fees. Origination fees collected at the time of
investment are recorded against the loans receivable and amortized into net interest income over the lives of the related loans.
Issuance costs incurred are capitalized along with the initial investment and amortized against net interest income over the lives
of the related loans.
When a loan receivable is placed on non-accrual status, the related
interest receivable is reversed against interest income of the current period. If a non-accrual loan is returned to accrual status,
the accrued interest existing at the date the residential loan is placed on non-accrual status and interest during the non-accrual
period are recorded as interest income as of the date the loan no longer meets the non-accrual criteria. As of June 30, 2019, and
December 31, 2018, since all loans receivable are considered performing according to their payment terms, no accounts receivable
aging schedule or credit quality indicators are necessary.
The Company maintains
an allowance for loan losses on its investments in real estate loans receivable for estimated credit impairment. Management’s
estimate of losses is based on a number of factors including the types and dollar amounts of loans in the portfolio, adverse situations
that may affect the borrower’s ability to repay, prevailing economic conditions and the underlying collateral securing the
loan. Additions to the allowance are provided through a charge to earnings and are based on an assessment of certain
factors, which may indicate estimated losses on the loans. Actual losses on loans are recorded first as a reduction
to the allowance for loan losses. Generally, subsequent recoveries of amounts previously charged off are recognized
as income.
Estimating allowances
for loan losses requires significant judgment about the underlying collateral, including liquidation value, condition of the collateral,
competency and cooperation of the related borrower and specific legal issues that affect loan collections or taking possession
of the property on an individual loan receivable basis. Management determined that no allowance for loan losses was
necessary as of June 30, 2019 and December 31, 2018.
Property and Equipment
Property and equipment are stated at cost less
accumulated depreciation and amortization. Equipment and fixtures will be depreciated using the straight-line method over the estimated
asset lives of 5 years, and software is amortized over the estimated asset lives of 3 years.
Income Taxes
The Company accounts for its income taxes in
accordance with FASB Accounting Standards Codification (“ASC”) No. 740, "Income Taxes". Under this method,
deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their respective tax balances. Deferred tax assets and liabilities
are measured using enacted or substantially enacted tax rates expected to apply to the taxable income in the years in which those
differences are expected to be recovered or settled. Deferred tax assets are reduced by a valuation allowance when, in the opinion
of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. The effect
on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the date of
enactment or substantive enactment.
Accounting for Uncertainty in Income Taxes
The Company applies the provisions of ASC Topic
740-10-25, Income Taxes – Overall – Recognition (“ASC Topic 740-10-25”) with respect to the accounting
for uncertainty of income tax positions. ASC Topic 740-10-25 clarifies the accounting for uncertainty in income taxes recognized
in a company’s financial statements and prescribes a recognition threshold and measurement attribute for the financial statement
recognition and measurement of a tax position taken or expected to be taken in a tax return. ASC Topic 740-10-25 also provides
guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. As
December 31, 2018, tax years since 2015 remain open for IRS audit. The Company has received no notice of audit from the Internal
Revenue Service for any of the open tax years.
Revenue Recognition and Investment Income
Origination fees collected at the time of investment
are recorded against the loans receivable and amortized into net interest income over the lives of the related loans. Issuance
costs incurred are capitalized along with the initial investment and amortized against net interest income over the lives of the
related loans. The Company records interest income in accordance with ASC subtopic 835-30 "Imputation of Interest", using
the effective interest method. The following is a summary of the components of the Company’s net investment income for the
three and six months ended June 30, 2019 and 208:
|
|
|
Three Months Ended June 30,
|
|
|
Six Months Ended June 30,
|
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
|
Interest
Income
|
|
$
|
25,952
|
|
|
$
|
8,440
|
|
|
$
|
39,219
|
|
|
$
|
16,381
|
|
|
Accretion of Loan
Origination Fees
|
|
|
39,632
|
|
|
|
21,159
|
|
|
|
79,265
|
|
|
|
42,318
|
|
|
Amortization
of Loan Issuance Costs
|
|
|
(25,785
|
)
|
|
|
(20,667
|
)
|
|
|
(51,571
|
)
|
|
|
(41,334
|
)
|
|
Net
Investment Income
|
|
$
|
39,799
|
|
|
$
|
8,932
|
|
|
$
|
66,912
|
|
|
$
|
17,365
|
|
When a loan is placed on non-accrual status,
the related interest receivable is reversed against interest income of the current period. If a non-accrual loan is returned to
accrual status, the accrued interest existing at the date the residential loan is placed on non-accrual status and interest during
the non-accrual period are recorded as interest income as of the date the loan no longer meets the non-accrual criteria.
The Company suspends recognizing interest
income when it is probable that the Company will be unable to collect all payments according to the contractual terms of the underlying
agreements. Management considers all information available in assessing collectability. Collectability is measured on a receivable-by-receivable
basis by either the present value of estimated future cash flows discounted at the effective rate, the observable market price
for the receivable or the fair value of the collateral if the receivable is collateral dependent. Large groups of smaller balance
homogeneous receivables, such as pre-settlement funding transactions, are collectively assessed for collectability. A receivable
is charged off when in the Company's judgment, the receivable or portion of the receivable is considered uncollectible.
Payments received on past due receivables and
finance receivables the Company has suspended recognizing interest income on are applied first to principal and then to accrued
interest. Interest income on past due receivables and finance receivables, if received, is recorded using the cash basis method
of accounting. Additionally, the Company generally does not resume recognition of interest income once it has been suspended.
Variable Interest Entity
The Company holds a 10% interest in Paris
Med, of which the remaining 90% interest is held by Omega. Through December 31, 2018, the Company has provided 100% of
the funding to Paris Med, which has provided a construction loan to a third party. This loan receivable is the sole
asset of Paris Med. The Company determined that Paris Med was a variable interest entity based on various qualitative
and quantitative factors including but not limited to: 1) financing of Paris Med’s sole asset was received by the
Company, which is disproportionate to the Company’s ownership interest and 2) the Company and Omega, a related party,
organized the entity for the purpose of facilitating the Company’s activities. As of December 31, 2018 and June
30, 2019, the Company is considered the primary beneficiary because it has provided substantially all of its financial
support and is the only party at risk. As of June 30, 2019, Paris Med has total assets of $558,000, consisting solely
of advances made pursuant to its third party construction loan agreement, and had no liabilities. 100% of the funding for
the sole asset was provided by the Company and such amounts are eliminated in consolidation. See Note 3. For the
six months ended June 30, 2019, Paris Med had no activity. The Company will evaluate its investments in Paris Med
each reporting period to determine if it is still the primary beneficiary, and if no longer considered the primary
beneficiary, deconsolidate Paris Med in the period in which circumstances change or events occur causing a change in its
assessment. The Company has not attributed any of its net loss or equity to non-controlling interest because Paris
Med’s sole asset is amounts owed to the Company, which is eliminated in consolidation, and there was no material income
earned or losses incurred to date by Paris Med.
Fair Value
The carrying amounts reported in the balance
sheet for cash, accounts payable and notes payable approximate their estimated fair market value based on the short-term maturity
of this instrument. The carrying value of the Company’s loans receivable approximate fair value because their terms approximate
market rates.
Net Loss Per Share
Basic loss per share is computed by dividing
the net loss available to common stockholders by the weighted average number of common shares outstanding for the year. Dilutive
loss per share reflects the potential dilution of securities that could share in the losses of the Company. 166,667 shares underlying
convertible preferred stock and 350,000 shares of common stock underlying common stock warrants were excluded from the computation
of diluted loss per share for the six months ended June 30, 2019, because their impact was anti-dilutive. 520,000 shares of common
stock underlying common stock warrants were excluded from the computation of diluted loss per share for the six months ended June
30, 2018, because their impact was anti-dilutive.
Concentration of Credit Risk
Financial instruments that potentially subject
the Company to significant concentrations of credit risk consist primarily of cash and cash equivalents and loans receivable. The
Company maintains its cash in bank and financial institution deposits that at times may exceed federally insured limits. The Company
has not experienced any losses in such accounts through June 30, 2019.
Recently Issued and Adopted Accounting Pronouncements
The following recent accounting pronouncements
have been published by the FASB but were not effective at the date these condensed consolidated financial statements were available
for issuance.
In January 2016, the FASB issued ASU No. 2016-01,
Financial
Instruments - Overall (Subtopic 825- 10), Recognition and Measurement of Financial Assets and Financial Liabilities
. The
provisions of the update require equity investments to be measured at fair value with changes in fair value recognized in net income.
However, an entity may choose to measure equity investments that do not have readily determinable fair values at cost minus impairment.
The update also simplifies the impairment assessment of equity investments without readily determinable fair values by requiring
a qualitative assessment to identify impairment. It also eliminates the requirement to disclose the fair value of financial instruments
measured at amortized cost for entities that are not public business entities, and eliminates the requirement for public business
entities to disclose the methods and significant assumptions used to estimate the fair value for financial instruments measured
at amortized cost on the balance sheet. ASU No. 2016-01 requires public business entities to use the exit price notion when measuring
the fair value of financial instruments for disclosure purposes. It also requires an entity to present separately in other comprehensive
income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit
risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial
instruments. The update requires separate presentation of financial assets and financial liabilities by category and form on the
balance sheet or the accompanying notes to the financial statements. In addition, the update clarifies that an entity should evaluate
the need for a valuation allowance on a deferred tax asset related to available-for-sale securities in combination with the entity’s
other deferred tax assets. For an emerging growth company, the amendments in the update are effective for fiscal years beginning
after December 15, 2018, and interim periods within fiscal years beginning after December 15, 2019. The adoption of this ASU did
not have a material impact on the Company’s financial statements.
In February 2016, the FASB issued ASU 2016-02,
Leases
(Topic 842), Conforming Amendments Related to Leases
. This ASU amends the codification regarding leases in order to increase
transparency and comparability. The ASU requires companies to recognize lease assets and liabilities on the statement of condition
and disclose key information about leasing arrangements. A lessee would recognize a liability to make lease payments and a right-of-use
asset representing its right to use the leased asset for the lease term. For an emerging growth company, the amendments in the
update are effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after
December 15, 2020. The adoption of this ASU is not expected to have a material effect on the Company’s financial statements.
In June 2016, the FASB issued ASU 2016-13,
Financial
Instruments – Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments
. The amendments introduce
an impairment model that is based on expected credit losses (“ECL”), rather than incurred losses, to estimate credit
losses on certain types of financial instruments (ex. loans and held to maturity securities), including certain off-balance sheet
financial instruments (ex. commitments to extend credit and standby letters of credit that are not unconditionally cancellable).
The ECL should consider historical information, current information, and reasonable and supportable forecasts, including estimates
of prepayments, over the contractual term. An entity must use judgment in determining the relevant information and estimation methods
that are appropriate in its circumstances. Financial instruments with similar risk characteristics may be grouped together when
estimating the ECL. The ASU also amends the current available for sale security impairment model for debt securities whereby credit
losses relating to available for sale debt securities should be recorded through an allowance for credit losses. For an emerging
growth company, the amendments in the update are effective for fiscal years beginning after December 15, 2020, and interim periods
within fiscal years beginning after December 15, 2021. The amendments will be applied through a modified retrospective approach,
resulting in a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the
guidance is effective. The Company is currently planning for the implementation of this accounting standard. It is too early to
assess the impact this guidance will have on the Company’s financial statements.
In August 2016, the FASB issued ASU No. 2016-15,
Statement
of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments
. The amendments in this ASU clarify the
proper classification for certain cash receipts and cash payments, including clarification on debt prepayment or debt extinguishment
costs, settlement of zero-coupon debt instruments, contingent consideration payments made after a business combination, proceeds
from the settlement of insurance claims, and proceeds from the settlement of corporate-owned life insurance policies, including
bank-owned life insurance policies, among others. For an emerging growth company, the amendments in the update are effective for
fiscal years beginning after December 15, 2018, and interim periods within fiscal years beginning after December 15, 2019. The
Company adoption of this amendment did not have a material impact on the Company’s Financial Statements.
The Company has implemented all new accounting
pronouncements that are in effect and that may impact its financial statements and does not believe that there are any other new
accounting pronouncements that have been issued that might have a material impact on its financial position or results of operations.
NOTE 3 – LOANS RECEIVABLE, NET
Related Parties
Loan Agreement with Partners South Holdings
LLC (Revolving Line of Credit)
On August 28, 2017, the Company entered into
a loan agreement with Partners South Holdings LLC (“Borrower”), which is owned by Timothy R. Fussell, President, Chairman
of the Board and a director of the Company, for a revolving line of credit in the maximum principal sum of $3,600,000 for the purpose
of financing real property construction costs and working capital needs. The loan is secured in full by a first position lien on
any and all Real Property in which the Borrower has any interest in for such purposes. The maturity date of the loan is August
31, 2022 at which time the entire principal balance of the loan plus accrued interest thereon is due and payable. The fixed interest
rate on the loan is 3.5% to be paid quarterly on the 1
st
day of the fiscal quarter. As of June 30, 2019, the amount
of $477,500 had been advanced on the loan. The origination fees of $180,000 due to the Company have been added to the balance due
on the loan and recorded as a discount against the loan to be amortized into income through the maturity date. As of June 30, 2019,
and December 31, 2018, the gross loan receivable balance is $657,500.
Loan Agreement with Partners South Properties
Corporation (Revolving Line of Credit)
On August 28, 2017 the Company entered into
a loan agreement with Partners South Properties Corporation (“Borrower”), which is owned by Timothy R. Fussell, President,
Chairman of the Board and a director of the Company, for a revolving line of credit in the maximum principal sum of $5,000,000
for the purpose of financing real property construction costs and working capital needs. The loan is secured in full by a first
position lien on any and all Real Property in which the Borrower has any interest in for such purposes. The maturity date of the
loan is August 31, 2022 at which time the entire principal balance of the loan plus accrued interest thereon is due and payable.
The fixed interest rate on the loan is 3.5% to be paid quarterly on the 1
st
day of the fiscal quarter. As of June 30,
2019, and December 31, 2018, the gross loan receivable balance is $250,000.
Non-Binding Memorandum with Diamond Ventures
Funds Management LLC
The Company and Diamond Ventures Funds Management
LLC (“DVFM”) have executed a non-binding Memorandum of Understanding (“MOU”) in connection with ongoing
discussions regarding a Share Exchange & Acquisition of Membership interest into DVFM that will facilitate up to a 40% acquisition
of DVFM. The terms of the exchange are not public at this time. Upon the signing of the MOU $25,000 was advanced to the Borrower
as part of the Business Line of Credit to be established as part of the MOU. The funds are to be exclusively used for business
purposes solely related to accounting and legal fees.
The following is a summary of mortgages receivable
as of June 30, 2019, and December 31, 2018:
|
|
|
June 30,
2019
|
|
|
December 31,
2018
|
|
|
Principal Amount Outstanding
|
|
$
|
932,500
|
|
|
$
|
932,500
|
|
|
Unaccreted Discounts, net of unamortized issuance
costs
|
|
|
(15,634
|
)
|
|
|
(7,322
|
)
|
|
Net Carrying Value
|
|
$
|
916,866
|
|
|
$
|
925,178
|
|
Third Parties
On May 2, 2018, the Company and Paris Med entered
into agreements, pursuant to which Paris Med agreed to provide project financing in the amount of $158,216,541, to an unrelated
third party consisting of three notes as follows:
|
|
1)
|
Construction financing in the amount of $90,204,328, maturing in
10 years, including the construction period, and accruing interest at an annual rate of 5.5% during the construction period, and
4.5% upon conversion to a permanent loan. As of June 30, 2018, Paris Med has made $558,000 of advances pursuant to the construction
loan. The Company received loan origination fees, in the amount of $92,400, which is presented net of the underlying loan
advances on the
|
|
|
|
accompanying consolidated balance
sheets and amortized into income over the terms of the underlying loans. During the six months ended June 30, 2019, the Company
amortized $4,580 of the discount and the loan is carried at $476,229, net of unamortized discount of $81,771.
|
|
|
2)
|
Equipment financing note in the amount of $24,715,986, payable monthly,
accruing interest at an annual rate of 5.75%, and having terms approximating the lives of the underlying equipment. As of
June 30, 2018, no amounts have been advanced pursuant to the equipment financing note.
|
|
|
3)
|
Operations financing, business line of credit in the amount of $23,932,625,
accruing interest at an annual rate of 5.75%, maturing in 10 years. As of December 31, 2018, no amounts have been advanced
pursuant to the line of credit.
|
|
|
4)
|
The notes are secured by the assignment of leases and fixed assets
related to the project.
|
On September 26, 2018, the Company, through
a newly formed, wholly-owned limited liability company, acquired 100% of Jersey Walk Phase I, LLC (“Jersey Walk”),
with all income going to the Company and has entered into a construction loan agreement with an unrelated party, CMT Developers,
LLC (“CMT”), pursuant to which, CMT executed a promissory note in the favor of Jersey Walk in the amount of $73,496,002.
This amount was to be advanced to CMT as required for the completion of the construction and development of two multi-family residences
in Lakewood, New Jersey. All amounts advanced under the construction loan agreement were secured by the construction project
and due by September 30, 2028. The acquisition of Jersey Walk was rescinded on June 6, 2019, as of which date, $310,000 had
been advanced by Jersey Walk to CMT pursuant to the construction loan agreement. Pursuant to the construction loan agreement,
Jersey Walk is to receive a loan origination fee equal to 1.85% of the loan amount, or $1,259,192, of which $624,596 was received
during the year ended December 31, 2018, and recorded as deferred loan origination fees to be amortized into income over the term
of the loan. As a result of the rescission of the Jersey Walk acquisition, and deconsolidation of the subsidiary, deferred income
of $576,774 and construction loan advances of $310,000 were derecognized and included in the gain on deconsolidation for the three
and six months ended June 30, 2019, which totaled $316,774. The Company has retained no investment, and has no continuing involvement,
in CMT.
The following is a summary of loans receivable
as of June 30, 2019, and December 31, 2018:
|
|
|
June 30,
2019
|
|
|
December 31,
2018
|
|
|
Principal Amount Outstanding
|
|
$
|
558,000
|
|
|
$
|
868,000
|
|
|
Unaccreted Discounts
|
|
|
(81,771
|
)
|
|
|
(694,551
|
)
|
|
Net Carrying Value
|
|
$
|
476,229
|
|
|
$
|
173,449
|
|
NOTE 4 – MORTGAGE NOTE PAYABLE
On January 31, 2019, in connection with the
acquisition of CMT, the Company assumed a promissory note in the principal amount of $15,500,000. The note matured on September
27, 2018 and accrues interest at an annual rate of 12%. Interest in monthly payments of $155,000. For the six months ended June
30, 2019, the Company incurred $620,000 of interest expenses related to this note. As a result of the rescission of the Jersey
Walk acquisition, and deconsolidation of the subsidiary, the principal amount of the loan and accrued interest totaling $232,500
were derecognized and included in the gain on deconsolidation for the three and six months ended June 30, 2019.
NOTE 5 - COMMITMENTS AND CONTINGENCIES
Alpha Mortgage Notes, LLC
In exchange for its 90% interest in the
Alpha Mortgage Notes, LLC, ("SPV") the Company is required to contribute 4,015,667 shares of common stock to be used by the
SPV for the purchase of performing notes for the SPV. The SPV is required to make monthly distributions to its 10% member
of $10,000 up until the time a purchase of the performing notes are made, and upon the acquisition of the six
mortgages specified in the SPV's operating agreement, monthly payments of $150,000 per month from gross interest income
received for 30 months; and 20% of any other future note purchases. The 10% partner will also receive an amount equal to 1%
of the principal amounts received on each loan.
Litigation
The Company is not presently involved in any litigation.
Advisory Agreement
In June 2019, the Company entered into an advisory
agreement, pursuant to which it agreed to compensate a third party advisor, pursuant to which it agreed to compensate the advisory
a percentage of future capital raises facilitated by the advisor. Compensation includes non-refundable cash, cash compensation
based on a percentage of capital raised. The advisor may elect to receive certain percentage-based fees in the form of equity.
As of the date of this report, no amounts have been earned and no equity instruments
have
been issued as transaction-based fees pursuant to this agreement. In June 2019, the Company paid an advisory fee of $250,000,
which were recorded as prepaid expense to be amortized into expense over the three-month initial term. The unamortized portion
of the advisory fee totaled $217,391 as of June 30, 2019.
NOTE 6 – GOING CONCERN
Future issuances of the Company’s equity
or debt securities will be required in order for the Company to continue to finance its operations and continue as a going concern.
The Company’s present revenues are insufficient to meet operating expenses. The financial statements of the Company have
been prepared assuming that the Company will continue as a going concern, which contemplates, among other things, the realization
of assets and the satisfaction of liabilities in the normal course of business. For the six months ended June 30, 2019, the Company
had a net loss of $1,028,906 and net cash used in operations of $1,666,516. The Company has an accumulated deficit of $3,331,732
as of June 30, 2019 and requires capital for its contemplated operational and marketing activities to take place. The Company's
ability to raise additional capital through the future issuances of common stock is unknown. Securing additional financing, the
successful development of the Company's contemplated plan of operations, and its transition, ultimately, to the attainment of profitable
operations are necessary for the Company to continue operations. The ability to successfully resolve these factors raise substantial
doubt about the Company's ability to continue as a going concern. The financial statements of the Company do not include any adjustments
that may result from the outcome of these aforementioned uncertainties.
NOTE 7 – RELATED PARTY TRANSACTIONS
Loans receivable - The Company has extended
lines of credit and loans to related parties. See Note 3.
Management fee - During the six
months ended June 30, 2019, Omega Commercial Finance Corp, the Company’s principle stockholder, was paid $162,500 in
management fees pursuant to a corporate governance management agreement executed on June 1, 2017. Omega is to provide
services related to facilitating the introduction of potential investors for compensation of no less than $150,000 per year,
not to exceed $300,000 per year. The fee paid in 2019 is for services to be rendered throughout 2019. Accordingly,
$81,250 is reflected in prepaid expenses on the accompanying condensed consolidated balance sheet as of June 30 2019, and
$81,250 was recognized as expense during the six months ended June 30, 2019.
NOTE 8 – STOCKHOLDERS’ EQUITY
Incentive Plan
The Company’s
Incentive Plan provides for equity incentives to be granted to its employees, executive officers, directors, or to key advisers
or consultants. Equity incentives may be in the form of stock options with an exercise price not less than the fair market value
of the underlying Shares as determined pursuant to the Incentive Plan, restricted stock awards, other stock-based awards, or any
combination of the foregoing. The Incentive Plan is administered by the board of directors. 5,000,000 Shares are reserved for issuance
pursuant to the exercise of awards under the Incentive Plan. The number of shares so reserved automatically adjusts
upward on January 1 of each year, so that the number of shares covered by the Incentive Plan is equal to 15% of our issued
and outstanding common stock. As of June 30, 2019, there are 1,375,000 shares available for issuance under the plan and no options
outstanding.
Temporary Equity
On September 20, 2017, 166,667 shares of common
stock were issued at a value of $15.00 per share to one company in exchange for cash of $2,500,000. Pursuant to the subscription
agreement the investor has the right to require the Company to repurchase the shares for $2.5 million at anytime through December
2017. In December 2017, the Company negotiated and amended its agreement with the investor to extend this right through
May 15, 2018. As part of this extension, the investor was granted warrants to purchase 170,000 shares of common stock for an exercise
price of $15.00 per share over a five-year term. Because the shares are classified as a temporary equity, and the investors rights
to require repurchase of the shares initially expired in 2017 the Company recorded the fair value of these warrants were recorded
as a discount against the proceeds to be amortized as interest expense through February 2018, the initial extension date. In
March 2018, the Company entered into a third amendment to the subscription agreement, extending the option period to May 15, 2018.
The option was further extended in May and June 2018. As consideration for the extensions, the Company’s parent company,
Omega Commercial Finance Corporation, agreed to issue to the investor, 65,000 shares of its Series Z preferred stock, and the Company
agreed to reimburse the investor for $21,894 of legal fees incurred related to the extension. The Company estimated the fair
value of the Series Z preferred stock based on recent sales for cash, and recorded additional discounts of $184,394, including
the accrued legal fees, against the common stock to be amortized into interest expense through the extended
expiration
of the option in May 2018. In October 2018, the option period was further extended to November 19, 2018. As
consideration for the extension, the Company agreed to allow the investor to direct the investment of the restricted cash into
one more investment types, such stock, money market accounts or similar investments. The investor was also granted the right
to withdrawal any restricted cash in excess of $2.5 million. In November 2018, the option was further extended to January
12, 2019. In March 2019, the option period was extended to June 2019. In June 2019, the option period was extended to September 27, 2019. There is no remaining unamortized discount
as of June 30, 2019 and December 31, 2018. Accordingly, the amounts received are presented as a temporary equity as of December
31, 2018 and June 30, 2019.
On November 27, 2017, 16,667 shares of Series
2018 Convertible Preferred stock were issued at a value of $15.00 per share to one entity in exchange for cash of $250,000. The
shares have 350,000 warrants attached, each warrant entitling the holder to one additional share with an exercise date of up to
5 years from the issuance date of the shares. The preferred stock is mandatorily redeemable 10 years after issuance. Each share is convertible into 2 shares of common stock per one share of 2018 Convertible Preferred Stock
at the option of the holder for a period of one-year from issuance at the option of the holder, and the Company has the right to
redeem the preferred stock at any time by paying cash, common stock, or a combination at an amount per share equal to par value
per share. The
Company allocated $236,897 the proceeds from the sale of the preferred stock to the warrants, which was recorded as a discount
against the preferred stock and is to be amortized as a deemed dividend through the 10-year redemption date. The balance
of the preferred stock reflected in temporary equity as of June 30, 2019 and December 31, 2018, was $51,190 and $39,346, respectively,
net of unamortized discounts of $205,311 and $211,233, respectively.
In November 2017, The Company also issued to
the investor, 7,333 shares of Series 2018 Convertible Preferred Stock pursuant to the subscription agreement. As of June
30, 2019, the Company has yet to receive $113,000 of the proceeds which is presented as subscription receivable.
During the year ended December 31, 2018, the Company issued 20,000
shares of Series 2018 Convertible Preferred Stock to its chief executive officer as compensation for services provided. The
Company estimated the fair value of the shares, based on recent sales for cash, of $300,000, which is included in temporary equity
as of June 30, 2019 and December 31, 2018.
Common Stock
During the six months
ended June 30, 2019, the Company sold 53,733 shares for gross proceeds of $806,000.
Preferred Stock
In November 2017, the
Company’s board of directors designated 100,000 authorized shares of Series A Convertible Preferred Stock (“Series
A”). Each share of Series A has a par value of $15.00 and have no voting or dividend rights. Upon liquidation, dissolution
or wining up, the holders of Series A shares are entitled to be paid out of the assets of the Company, if any, rateably with the
common stock holders. Each share of Series A is convertible within one year of issuance into two shares of common stock of the
Company. At any time after 180 days of issuance, the Company has the right, but not the obligation, to redeem all, but not less
than all, of the outstanding Series A shares by paying cash, common stock, or a a combination of both an amount equal to the par
value of the Series A shares. On the one-year anniversary of issuance, the Company has an obligation to redeem the Series A shares
for an amount equal to the par value of the Series A shares.
As of June 30, 2019
and December 31, 2018, there were 1,167 shares of Series A Convertible Preferred Stock outstanding.
Capital Contributions
During the six months
ended June 30, 2019, Omega Commercial Finance Corp made a cash contribution to the Company of $87,100. This was classified as capital
contribution and recorded in additional paid-in capital.
Sale of Minority
Interest in Subsidiary
During the six months
ended June 30, 2019, the Company sold a 10% interest in a newly formed subsidiary for $1,000,000. See Note 1.
Common Stock Warrants
As of June 30, 2019,
there are warrants outstanding to purchase 520,000 shares for an exercise price of $15.00 over five years. There has been no warrant
activity during the year ended December 31, 2018 or the six months ended June 30, 2019.