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 Based on the foregoing, effective June 7, 2019, the Company rescinded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”). Alameda Partners is a third party Utah
Limited Liability Company that 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 mortgage notes and support other related growth initiatives and assets acquisitions for the
Company of which is positioning for its up-listing to the NYSE. They have been appointed as the Managing Members of the SPV,
while the Company 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 mortgage 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 $1,000,000 was recorded as additional paid in capital on
the accompanying condensed consolidated balance sheet. Alameda Partners is entitled to monthly distributions in cash and
stock equal to $10,000. For the nine months ended September 30, 2019, the Company has recorded $70,000 of distributions as
reductions to additional paid in capital, which has been accrued and included in Distributions Payable on the attached
condensed consolidated balance sheet as of September 30, 2019. As of September 30, 2019, Alpha Mortgage Notes I, LLC has not
completed any transactions. In July 2019, the Company paid Alameda Partners a consulting fee of $25,000 related to the
exploration of possible investments.
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 nine months ended
September 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 contingencies. 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 September 30,
2019, the Company had no cash equivalents.
Restricted Cash Held in Escrow
The Company has approximately $2,509,000
of restricted cash held in escrow from the sale of redeemable common stock to an investor that has the right to require the
Company to repurchase the common stock for $2,500,000 through September 2020.
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.
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 September 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
September 30, 2019, 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 nine months ended September 30, 2019 and 2018:
|
|
Three Months Ended
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
Interest Income
|
|
$
|
13,112
|
|
|
$
|
13,440
|
|
|
$
|
78,112
|
|
|
$
|
29,815
|
|
Accretion of Loan Origination Fees
|
|
|
23,919
|
|
|
|
21,629
|
|
|
|
103,187
|
|
|
|
64,183
|
|
Amortization of Loan Issuance Costs
|
|
|
(25,785
|
)
|
|
|
(21,126
|
)
|
|
|
(103,141
|
)
|
|
|
(62,690
|
)
|
Net Investment Income
|
|
$
|
11,246
|
|
|
$
|
13,943
|
|
|
$
|
78,158
|
|
|
$
|
31,308
|
|
When a loan is placed on non-accrual
status, the related current period interest receivable is reversed against interest income of the current period and prior
period unpaid interest is recorded as bad debt expense. 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 September 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 September 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 nine months ended September 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 nine months ended September 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 nine months
ended September 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 September 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 cancelable).
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 1st day of the
fiscal quarter. The Company is in the process of obtaining additional financing to commit to the rest of the funding for this loan agreement.
Until the Company is able to obtain this additional financing, it has deferred collection of the quarterly interest payments.
Additionally, in the event if additional financing is not provided, this construction loan can be converted to a term loan
at market rates. As of September 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 September 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 1st day of the fiscal quarter. The Company is in the process of obtaining additional financing to commit to the rest of the funding for this loan agreement.
Until the Company is able to obtain this additional financing, it has deferred collection of the quarterly interest payments.
Additionally, in the event if additional financing is not provided, this construction loan can be converted to a term loan
at market rates. As of September
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 September 30, 2019, and December 31, 2018:
|
|
September 30,
2019
|
|
|
December 31,
2018
|
|
Principal Amount Outstanding
|
|
$
|
932,500
|
|
|
$
|
932,500
|
|
Unaccreted Discounts, net of unamortized issuance costs
|
|
|
(19,790
|
)
|
|
|
(7,322
|
)
|
Net Carrying Value
|
|
$
|
912,710
|
|
|
$
|
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 September 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 nine months ended September 30, 2019, the Company amortized $6,870 of the discount and the loan is carried at $478,519, net of unamortized discount of $79,481.
|
|
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 September 30, 2019, 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 September 30, 2019, and 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 nine months ended September 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 September 30, 2019, and December 31, 2018:
|
|
September 30,
2019
|
|
|
December 31,
2018
|
|
Principal Amount Outstanding
|
|
$
|
558,000
|
|
|
$
|
868,000
|
|
Unaccreted Discounts
|
|
|
(79,481
|
)
|
|
|
(694,551
|
)
|
Net Carrying Value
|
|
$
|
478,519
|
|
|
$
|
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 nine months ended September
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 nine months ended September 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. As of September 30, 2019, Alpha Mortgage Notes I, LLC has
not completed any transactions or contributed these shares. 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 was recorded as expense over the three-month initial term ended in September 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 nine months ended September 30, 2019, the
Company had a net loss of $1,404,797 and net cash used in operations of $1,809,875. The Company has an accumulated deficit of $3,718,429
as of September 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. 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 nine months ended
September 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, $41,071 is reflected in prepaid
expenses on the accompanying condensed consolidated balance sheet as of September 30 2019, and $121,429 was recognized as expense
during the nine months ended September 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 September 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. In September
2019, the option period was extended to February 2020. There is no remaining unamortized discount as of September 30, 2019
and December 31, 2018. Accordingly, the amounts received are presented as a temporary equity as of December 31, 2018 and September
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. These preferred stock are considered temporary equity as it includes an unconditional obligation requiring the issuer to redeem
the instrument by transferring its assets at a specified or determinable date (or dates) or upon an event that is certain
to occur. Additionally, if redemption of the instrument is not certain to occur, the instrument is not required to be classified
as a liability pursuant to ASC 480 and therefore is included in temporary equity. 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 September 30, 2019 and December 31, 2018, was $57,114 and $39,346, respectively, net of unamortized
discounts of $193,466 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.
In November 2019, the Company and the investor have agreed to rescind the subscription agreement and return the shares
to the Company for cancellation.
During the year ended December 31, 2018, the Company issued 20,000
shares of Series 2018 Convertible Preferred Stock to its chairman of the board 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 September 30, 2019 and December 31, 2018.
Common
Stock
During
the nine months ended September 30, 2019, the Company sold 55,733 shares for gross proceeds of $886,003, of which $50,000 was received
in October 2019 and is included in subscription receivable on the accompanying condensed consolidated balance sheet. As of September
30, 2019, 23,333 shares have yet to be issued due to administrative delays. In July 2019, the Company agreed to amend one of the
subscription agreements and canceled the sale 6,000 shares for cash consideration of $90,000.
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, ratably 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 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
September 30, 2019 and December 31, 2018, there were 1,167 shares of Series A Convertible Preferred Stock outstanding.
Capital
Contributions
During
the nine months ended September 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 nine months ended September 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
September 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 nine months ended September 30, 2019.
NOTE 9 – SUBSEQUENT EVENTS
On October 25, 2019, the Company engaged Aegis Capital Corp (Aegis) to provide investment banking and advisory
services to the Company.